Crude Oil Futures Decline as U.S. Job Losses Exceed Forecasts

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Commodities - International Oil Report

Crude oil dropped the most in a week after a report showed the U.S. jobless rate increased to a 26- year high in September, boosting concern fuel demand will be slow to rebound. Oil snapped two days of gains as employers cut more jobs than forecast last month, according to a Labor Department report. Orders placed with U.S. factories also fell unexpectedly in August, according to the Commerce Department. “The economy is faltering, and today’s economic numbers point it out very clearly,” said James Cordier, portfolio manager at in Tampa, Florida. “Main Street is not getting better, and that is where the rubber hits the road as far as demand goes.” Crude oil for November delivery fell 87 cents, or 1.2 percent, to settle at $69.95 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Crude added 6 percent this week, its biggest weekly gain since Aug. 21. Oil has climbed 57 percent this year. The U.S. unemployment rate rose to 9.8 percent, the highest since 1983, from 9.7 percent in August, the Labor Department said today in Washington. Payrolls fell by 263,000 following a revised 201,000 decline the prior month that was less than previously reported. The jobless rate “speaks directly to real-time demand in terms of a flagging consumer at the pump and industrial demand in general,” said John Kilduff, senior vice president of energy at MF Global in New York. “It should continue to exert pressure on the crude-oil market.”

Factory Orders
U.S. factory bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated, the Commerce Department said today. They were restrained by long-lasting items such as commercial aircraft, construction machinery and electrical equipment. Excluding transportation equipment, orders rose 0.4 percent. “There’s a long road back before we can consider consumers to be on a firm footing that would support a recovery in petroleum demand,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. Gasoline demand, averaged over the past four weeks, dropped 1 percent to 9.05 million barrels a day, the U.S. Energy Department reported on Sept. 30. Total fuel consumption averaged over the four-week period fell to 19 million barrels a day from 19.2 million. “Motor gasoline demand in the United States peaked in 2007,” Exxon Mobil Corp. Chief Executive Officer Rex Tillerson said late yesterday at a speech to the Economic Club of Washington. He cited improvements in vehicle efficiency and greater use of biofuels.

On the Chin
Oil has been trading within a $65 to $75 range for the past two months. “The market can drop close to $3 and still not penetrate to an area where it means very much,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The battle we’re seeing between $65 and $75 is still being played out. The bulls, basing their trades on the ideas that the economy is improving, are kind of taking it on the chin.” Brent crude oil for November settlement dropped $1.12, or 1.6 percent, to $68.07 a barrel on the London-based ICE Futures Europe exchange. Higher output from non-OPEC producers also weighed on prices. Russia increased oil output 1.7 percent to a post-Soviet high in September from a year earlier after OAO Rosneft brought a new field on line in August. Total production rose to 10.01 million barrels a day from 9.84 million barrels in September last year, the Energy Ministry’s CDU-TEK unit said in an e- mailed statement today.

Russian Output
The figure puts Russian output about 25 percent higher than that of Saudi Arabia, the world’s largest producer in 2008, according to U.S. Energy Department data and Bloomberg estimates. The kingdom pumped 8.015 million barrels a day last month, according to a Bloomberg report published yesterday. It has cut output by 17 percent from 9.6 million barrels a day in July 2008 as part of an effort by the Organization of Petroleum Exporting Countries to curtail shipments to support prices. Crude oil futures may decline next week as refineries slow operations and demand decreases before the North American heating season begins, a Bloomberg News survey showed. Fifteen of 31 analysts, or 48 percent, said futures will drop through Oct. 9. Six respondents, or 19 percent, forecast that the market will rise and 10 said prices will be little changed. Last week, 55 percent of analysts said oil would fall. Oil volume in electronic trading on the Nymex was 463,022 contracts as of 3:51 p.m. in New York. Volume totaled 578,887 contracts yesterday, 5.1 percent higher than the average over the past three months. Open interest was 1.2 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

Source: Bloomberg


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