BLBG: Crude Fluctuates On Economic Concern, Strengthening Euro
Oil fluctuated as economic reports from the U.S. and China signaled that growth may be slowing and as the euro strengthened against the dollar.
Prices traded near the lowest level in eight months as orders to U.S. factories unexpectedly fell in April and China’s non-manufacturing industries expanded at the slowest pace in more than a year in May. The euro rose for a second day versus the dollar after European leaders agreed to discuss closer banking cooperation in the euro bloc.
“Everyone knows there are problems in Europe, but when you start getting weak economic data in the U.S. and China consistently, that’s definitely keeping the market nervous,” said Jacob Correll, a commodity analyst at Summit Energy Inc. in Louisville, Kentucky. “The stronger euro alleviated losses in oil.”
Oil for July delivery slid 14 cents to $83.09 a barrel at 11:23 a.m. on the New York Mercantile Exchange after falling to $81.21, the lowest intraday level since Oct. 6. Futures fell in 17 trading sessions in May, or the most days in a single month since January 1997.
Brent futures for July settlement declined 89 cents, or 0.9 percent, to $97.54 a barrel on the ICE Futures Europe exchange in London. The European benchmark closed at the lowest level since January 2011 on June 1 after falling below $100 for the first time since October.
U.S. factory orders dropped 0.6 percent in April after a revised 2.1 percent decrease in March, the first back-to-back declines in more than three years, figures from the Commerce Department showed today in Washington. Economists projected a 0.2 percent gain in a Bloomberg survey before the report.
China’s Economy
China’s purchasing managers’ index for non-manufacturing industries fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That’s the lowest reading since March 2011, when the federation started seasonally adjusting the data.
“Commodity traders are definitely looking to China to get some answers and if China is weak, there is your oil demand,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “The euro is strengthening and it’s supportive for oil.”
The report followed data June 1 that showed manufacturing in the world’s second-largest oil consuming country grew less than forecast in the same month.
Global Consumption
“Big declines” in consumption are foreseen in Europe and the U.S. this year from 2011, the International Energy Agency said in its monthly Oil Market Report on May 11. Demand from China and non-industrialized nations outside the Organization for Economic Cooperation and Development is forecast to boost global consumption by 0.9 percent this year from 2011.
“China is really the engine of demand growth and now it’s a big concern,” Correll said.
Oil also fell as the euro gained 0.5 percent against the dollar after European Commission President Jose Barroso and German Chancellor Angela Merkel agreed to discuss proposals on banking coordination when they meet today in Berlin.
The commission, the European Union’s executive, last week called for a “banking union” that would integrate supervision of lenders more tightly and create a pool of EU funds to clean up banks with cross-border exposure.
Bailout Fund
The Brussels-based commission also proposed that the euro’s permanent bailout fund inject cash to banks instead of channeling the money through national governments.
The euro touched $1.2288 on June 1, the weakest level since July 1, 2010. A stronger euro and weaker dollar increase oil’s appeal as an alternative investment.
“It’s all about dollar weakness,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “We are seeing commodity prices rebounding as a result of the strengthening euro.”
Crude dropped 3.8 percent on June 1 after the U.S. Labor Department reported that American employers added the fewest workers in a year in May. The U.S. is the world’s largest oil- consuming country.
Prices also declined as the euro region’s jobless rate reached a record high in April and March, the European Union’s statistics office in Luxembourg reported on the same day.
“We priced in economic Armageddon last week,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We’re now pricing in the prospect for stimulus in Europe, in the U.S. and in China.”
The Federal Reserve bought a total of $2.3 trillion in bonds from December 2008 to June 2011 to stimulate the economy.
To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
