Tuesday, May 3, 2011

Oil Drops in Longest Losing Streak Since March as Supplies Rise


By Ben Sharples

(Bloomberg) -- Oil declined for a third day in New York, the longest losing streak since March, on concern demand will weaken as crude stockpiles rise and job growth slows in the U.S., the world’s biggest consumer of the commodity.

Futures dropped as much as 0.6 percent after the American Petroleum Institute said inventories climbed 3.2 million barrels last week. The Energy Department will today say supplies increased for a second week, according to a Bloomberg News survey of analysts. Two reports this week may show the U.S. generated fewer jobs in April than in March.

“We’re still continuing to see the builds,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. “The litmus test will be the employment data due out on Friday.”

Crude for June delivery declined as much as 61 cents to $110.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $110.49 at 11:26 a.m. Sydney time. Yesterday it fell $2.47, or 2.2 percent, to $111.05, the biggest drop since April 18.

Oil is headed for a third day of declines, matching the longest streak of losses since the three days ended March 28. Prices are up 34 percent the past year.

Brent crude for June settlement traded at $121.75 a barrel, down 70 cents, on the London-based ICE Futures Europe Exchange. Yesterday, the contract declined $2.67, or 2.1 percent, to end the session at $122.45, the biggest drop since April 12.

Oil Stockpiles

U.S. crude inventories rose to 364.2 million last week, the American Petroleum Institute said yesterday. Gasoline stockpiles climbed 680,000 barrels to 211.3 million, it said. The Energy Department report today may show oil supplies climbed 2 million barrels from 363.1 million last week, the Bloomberg News survey shows. They surged 6.16 million barrels in the week ended April 22, the most since July.

Power outages last week disrupted production at Texas City, Texas, plants owned by BP Plc, Valero Energy Corp. and Marathon Oil Corp. which together account for almost 5 percent of U.S. refining capacity. Valero’s Corpus Christi East refinery in Corpus Christi, Texas, had a separate power failure at the end of the week that curtailed operations.

API collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Slower Job Growth

A report from ADP Employer Services may show U.S. employment increased by 198,000 workers in April, after a 201,000 increase in March, according to a Bloomberg News survey of economists before today’s report. Labor Department figures on May 6 will show payrolls rose by 185,000 workers last month after 216,000 a month earlier, a separate survey shows.

Brent, the European benchmark, traded at a premium of $11.40 a barrel to U.S. futures yesterday. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. The spread averaged 76 cents last year.

Open interest in New York futures reached a record for the second consecutive session. The exchange’s light, sweet crude oil was 1.63 million contracts yesterday, surpassing the high of 1.608 million set April 29, said Chris Grams, a spokesman for the exchange. The previous record was 1.606 million on March 11.

Higher Volatility

Oil options volatility increased for a third day after the death of al-Qaeda leader Osama bin Laden. Implied volatility for at-the-money options expiring in June, a measure of expected price swings in futures and a gauge of options prices, was 28.9 percent today, up from 28 percent yesterday.

The killing of bin Laden by U.S. forces in Pakistan on May 1 may lead to retaliatory attacks by al-Qaeda supporters. Bin Laden targeted oil facilities as a way to damage the U.S. and European economies. Saudi Arabian forces foiled the biggest attempted attack in 2006 on the Abqaiq oil-processing center, which handles two-thirds of the kingdom’s supply.

Oil has advanced 21 percent this year in New York as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Algeria, Bahrain, Iran, Oman, Syria and Yemen. The commodity has increased for eight months, the longest rising streak on record.

Syrian authorities have arrested more than 1,000 people in the last two days as a crackdown on demonstrations intensifies, according to Ammar Qurabi, head of the country’s National Organization for Human Rights.

Saudi Arabian Oil Co., the world’s largest oil exporter, plans to ship a fourth cargo of a new blend of light crude oil to the Mediterranean region for possible sale to Europe, according to a person with knowledge of the program.

The nation’s Oil Minister Ali al-Naimi announced on March 8 that Aramco had developed two light, low-sulfur blends with specifications closer to the crude normally supplied by Libya, a fellow member of the Organization of Petroleum Exporting Countries. Libyan exports have dwindled because of the conflict in the North African country.

--Editors: Paul Gordon, Jane, Ching Shen Lee

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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