Oil Declines for Second Day, Pares Loss as Storm Approaches Gulf

Oil pared loss as concern that production in the Gulf of Mexico may be disrupted by an approaching storm countered sluggish progress in resolving Europe’s debt crisis.
Futures were little changed after sliding as much as 0.9 percent. German Chancellor Angela Merkel said she and French President Francois Hollande will maintain the pressure on Greece to overhaul its economy at meetings with Prime Minister Antonis Samaras in Berlin today and tomorrow. Tropical Storm Isaac is on a path to affect energy operations in the Gulf next week.
The drop earlier today triggered “some buying interest,” said Filip Petersson, commodity strategist at SEB AB in Stockholm. “We have a potential hurricane heading straight for the production areas in the Gulf, and that is likely to help oil hold up against the bearish macro wind that is blowing.”
Crude for October delivery dropped as much as 86 cents to $95.41 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.07 at 10:23 a.m. London time. The contract yesterday fell 1 percent to $96.27, the lowest close since Aug. 20. Prices are up 0.1 percent this week and down 2.8 percent this year.
Brent oil for October settlement slid 15 cents, or 0.1 percent, to $114.86 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.59, from $18.74 yesterday.
Storm Issac
Tropical Storm strengthened in the Caribbean Sea on a path projected to bring rain and heavy winds to the Gulf of Mexico next week and threaten energy facilities. The Gulf is home to 29 percent of U.S. oil production, 6.3 percent of natural-gas output and 40 percent of refining capacity, according to the U.S. Energy Department.
“The storm is currently expected to hit the U.S. Gulf as a category 1 Hurricane, which is only a minimal threat for oil assets but on the current calculated path we expect that the U.S. Gulf will at least lose between 2 and 3 million barrels of oil production due to precautionary shutdowns, while crude imports will also be delayed,” Olivier Jakob, managing director of Zug, Switzerland-based research group, said today in an e- mailed report.
Oil is declining in New York after futures reached technical resistance yesterday along a downward-sloping trend line going back to March 1, according to data compiled by Bloomberg. This line, starting at the 2012 intraday high of $110.55 a barrel, is at $98.48 today. Sell orders tend to be clustered near chart-resistance levels.
Bailout Program
Samaras has used interviews this week with German and French newspapers to call for more time to meet targets under its bailout program as European officials look for ways to tame the debt crisis. Greece is dependent upon receiving outside funds to remain in the 17-nation euro area.
There won’t be anything tangible from the meetings before next month, said Michael Hewson, a London-based analyst at CMC Markets. “Merkel has already said that no decisions will be made before the troika report is delivered. Spain won’t ask for a bailout before the ECB meeting so we’re still waiting.”
Applications for U.S. unemployment benefits rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed yesterday in Washington. The Bloomberg Consumer Comfort Index decreased to minus 47.4 in the period ended Aug. 19, the sixth consecutive drop, from minus 44.4 in the prior period. The series of declines is the longest since 2008, when the U.S. was in recession.
China Oil Demand
China’s oil-demand growth will lag behind the average rate of the past five years as the country’s slowing economy reduces consumption of gasoil, or diesel, according to Deutsche Bank AG.
Demand in China, which uses more oil than any country apart from the U.S., will increase 3 percent this year and 4.5 percent in 2013, below the five-year average of about 7 percent, Soozhana Choi, the head of Asian commodities research based in Singapore, said in an e-mailed report today. Gasoil use, the biggest contributor to the nation’s oil-consumption mix, rose 1.3 percent in the first half of 2012, Deutsche Bank said.
“While demand will seasonally pick up in the second half, a dramatic recovery, especially in gasoil, is unlikely to materialize given the growth outlook,” she said.
New York crude may rise next week on speculation the Federal Reserve will boost stimulus and on concern Middle East tension will disrupt supplies, according to a Bloomberg News survey. Twenty-seven of 47 analysts, or 57 percent, forecast oil will increase through Aug. 31. Fifteen respondents, or 32 percent, predicted that futures will fall and five said there will be little change in prices.
Source: Bloomberg