Crude Oil Price Declines for a Third Day on Speculation OPEC Will Increase Quotas

Oil dropped for a third day in New York amid speculation OPEC may increase output quotas when it meets in Vienna tomorrow.

Futures slipped as much as 0.7 percent today after falling to the lowest in two weeks yesterday. The Organization of Petroleum Exporting Countries may raise production limits, Barclays Plc said June 6. The International Energy Agency said on May 19 it saw “an urgent need” for more oil to help bring down high prices threatening economies. Crude also slid on signs fuel demand is faltering along with slowing economic growth.

“The outcome of the OPEC meeting will be key,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted oil will average $113 a barrel in the third quarter. “The growth outlook from the economic data looks like it’s hit a bit of a softer patch.”

Crude for July delivery slid as much as 68 cents to $98.33 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.52 at 12:16 p.m. Singapore time. The contract yesterday fell $1.21, or 1.2 percent, to $99.01. Prices are up 38 percent the past year.

Brent crude for July delivery was at $114.01 a barrel, down 47 cents, on the London-based ICE Futures Europe exchange. The contract yesterday lost $1.36, or 1.2 percent, to $114.48. Prices are 58 percent higher the past year.
Oil Bets

The European benchmark contract traded at a premium of $15.49 a barrel to U.S. futures today. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year.

Options traders increased bets that oil prices will fall further. The most-active option yesterday was the July $95 put, which rose 17 cents to 79 cents. The second-most active contract was the August $90 put, which climbed 13 cents to $1.05.

“There is speculation that OPEC may raise production targets this week, on concerns from some OPEC members that higher oil prices are curbing demand,” economists at Australia & New Zealand Banking Group Ltd., led by Warren Hogan, wrote in a note today.

A “recalibration” of OPEC’s output target closer to actual output is expected, Barclays analysts led by London-based Paul Horsnell said in yesterday’s report.
OPEC Targets

The group will have to increase its production target by as much as 2.5 million barrels a day from 24.845 million or risk prices rising higher, according to a report from Johannes Benigni, chairman of consultant JBC Energy GmbH in Vienna.

“If OPEC doesn’t increase supply sufficiently it would be a tacit communication to the market that $100+ oil is acceptable,” said Benigni.

OPEC won’t announce a supply increase and will keep its formal production quota unchanged for an eighth consecutive meeting at the June 8 gathering, according to a Bloomberg survey of analysts conducted May 24-31. Venezuelan Oil Minister Rafael Ramirez also said the group is unlikely to raise production.

The OPEC members bound by the output quotas, not including Iraq, produced 26.2 million barrels a day in May, or about 1.4 million barrels over the limit, according to a Bloomberg News survey of analyst, producers and oil companies. Total supply was 28.895 million last month.

Brent has advanced 21 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya. In Syria, state television reported yesterday that more than 120 members of the security forces have been killed in the northern town of Jisr al-Shughour.

U.S. Stockpiles

A report from the U.S. Energy Department tomorrow may show U.S. gasoline stockpiles climbed by 1 million barrels last week from 212.3 million, according to a Bloomberg News survey of analysts. Crude inventories probably dropped 1.5 million barrels, the survey shows.

The U.S. unemployment rate unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, the Labor Department reported June 3. Employers added 54,000 jobs last month, after a revised 232,000 gain in April that was smaller than initially estimated. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000.

The Energy Department is scheduled to release its Short- term Energy Outlook today. The department last month cut its forecast for global oil consumption for this year to 88.08 million barrels a day from 88.2 million estimated in April.

Source. Oil dropped for a third day in New York amid speculation OPEC may increase output quotas when it meets in Vienna tomorrow.

Futures slipped as much as 0.7 percent today after falling to the lowest in two weeks yesterday. The Organization of Petroleum Exporting Countries may raise production limits, Barclays Plc said June 6. The International Energy Agency said on May 19 it saw “an urgent need” for more oil to help bring down high prices threatening economies. Crude also slid on signs fuel demand is faltering along with slowing economic growth.

“The outcome of the OPEC meeting will be key,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, who predicted oil will average $113 a barrel in the third quarter. “The growth outlook from the economic data looks like it’s hit a bit of a softer patch.”

Crude for July delivery slid as much as 68 cents to $98.33 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.52 at 12:16 p.m. Singapore time. The contract yesterday fell $1.21, or 1.2 percent, to $99.01. Prices are up 38 percent the past year.

Brent crude for July delivery was at $114.01 a barrel, down 47 cents, on the London-based ICE Futures Europe exchange. The contract yesterday lost $1.36, or 1.2 percent, to $114.48. Prices are 58 percent higher the past year.
Oil Bets

The European benchmark contract traded at a premium of $15.49 a barrel to U.S. futures today. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year.

Options traders increased bets that oil prices will fall further. The most-active option yesterday was the July $95 put, which rose 17 cents to 79 cents. The second-most active contract was the August $90 put, which climbed 13 cents to $1.05.

“There is speculation that OPEC may raise production targets this week, on concerns from some OPEC members that higher oil prices are curbing demand,” economists at Australia & New Zealand Banking Group Ltd., led by Warren Hogan, wrote in a note today.

A “recalibration” of OPEC’s output target closer to actual output is expected, Barclays analysts led by London-based Paul Horsnell said in yesterday’s report.
OPEC Targets

The group will have to increase its production target by as much as 2.5 million barrels a day from 24.845 million or risk prices rising higher, according to a report from Johannes Benigni, chairman of consultant JBC Energy GmbH in Vienna.

“If OPEC doesn’t increase supply sufficiently it would be a tacit communication to the market that $100+ oil is acceptable,” said Benigni.

OPEC won’t announce a supply increase and will keep its formal production quota unchanged for an eighth consecutive meeting at the June 8 gathering, according to a Bloomberg survey of analysts conducted May 24-31. Venezuelan Oil Minister Rafael Ramirez also said the group is unlikely to raise production.

The OPEC members bound by the output quotas, not including Iraq, produced 26.2 million barrels a day in May, or about 1.4 million barrels over the limit, according to a Bloomberg News survey of analyst, producers and oil companies. Total supply was 28.895 million last month.

Brent has advanced 21 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya. In Syria, state television reported yesterday that more than 120 members of the security forces have been killed in the northern town of Jisr al-Shughour.

U.S. Stockpiles

A report from the U.S. Energy Department tomorrow may show U.S. gasoline stockpiles climbed by 1 million barrels last week from 212.3 million, according to a Bloomberg News survey of analysts. Crude inventories probably dropped 1.5 million barrels, the survey shows.

The U.S. unemployment rate unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, the Labor Department reported June 3. Employers added 54,000 jobs last month, after a revised 232,000 gain in April that was smaller than initially estimated. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000.

The Energy Department is scheduled to release its Short- term Energy Outlook today. The department last month cut its forecast for global oil consumption for this year to 88.08 million barrels a day from 88.2 million estimated in April.

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Latest Oil Prices Dip

Brent crude slipped toward $115 a barrel on Monday on concern about demand after disappointing jobs data from top consumer United States, but a softer dollar and political upheaval in the Middle East limited losses.

The possibility that OPEC will raise supply when ministers meet this week also put pressure on prices. Gulf Arab members led by Saudi Arabia will push for a rise, but were likely to face opposition from OPEC's leading hawks Iran and Venezuela.

"Today there is no shortage of supply. OPEC will do its job," the chief executive of the French energy giant Total (TOTF.PA) said at a conference in Kuala Lumpur.

Brent crude fell 33 cents to $115.51 a barrel by 0340 GMT, after settling up 30 cents on Friday. U.S. crude slipped 8 cents to $100.13 a barrel.

"We are going to have sideways trade, basically because the weaker economy means weaker crude oil prices because of less demand in the U.S., but we have Yemen that's going to keep it high (along with) the weaker dollar," Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp, said.

U.S. data showed payrolls rose by 54,000 in May, the softest reading since September, and the country's jobless rate rose to 9.1 percent in May from 9 percent in April.

Falling oil demand and higher supplies in the world's largest economy are pushing prices lower, analysts said. U.S. crude oil stocks rose in the week to May 27 to their highest seasonal level for May since 1990.

TransCanada Corp's (TRP.TO) 591,000 barrel-per-day (bpd) capacity Keystone pipeline -- which carries oil from Alberta to the U.S. oil hub of Cushing -- resumed shipping crude oil, one week after being shut by a leak at a Kansas pumping station, the Calgary-based company said in a statement.

Technical charts indicated that oil prices may drop in the short term, with Brent expected to slip to $112 per barrel and U.S. oil expected to revisit the Friday low of $98.12 per barrel.

The dollar .DXY slid to a fresh one-month low against a basket of major currencies early in Asia on Monday, as the jobs data bolstered expectations that U.S. interest rates will stay low for longer.

"The value of the dollar and the way it's declining is keeping some of these commodities at levels which are not sustainable," Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said.

MIDDLE EAST SUPPORTS

Violence in the Middle East underpinned prices due to worries that instability could spill over to some of the world's largest oil and gas producers and disrupt global supplies.

Yemeni President Ali Abdullah Saleh was recovering from an operation in Saudi Arabia to remove shrapnel from his chest while a truce between his troops and a tribal federation appeared to be holding.

Protesters, interpreting Saleh's absence as a sign that his grip on power was weakening, celebrated on the streets of Sanaa where they have been staging anti-government demonstrations since January.

Syrian forces shot dead 31 people in the last 48 hours during demonstrations in a northwestern town and official media said gunmen killed four policemen in the same town.

Protests against Syria's President Bashar al-Assad have grown despite reform gestures dismissed by the opposition and a continuing crackdown that has killed at least 1,100 people since the uprising erupted two months ago.

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Oil edges up after falling below $US100

OIL edged up today, rebounding from earlier lows and holding close to the key level of $US100 a barrel as traders await more signals on the strength of the US economy.

Light, sweet crude oil for July delivery settled US11 cents higher at $US100.40 a barrel on the New York Mercantile Exchange, after dropping as low as $US98.46 a barrel earlier in the session. Brent crude oil on the ICE futures exchange ended $US1.04 higher at $US115.57 a barrel.

After a 2.4 per cent drop yesterday, oil prices fluctuated between gains and losses for much of the latest session. A US government report showing increases in oil and petrol stockpiles initially pushed crude oil lower, but prices quickly returned to the middle of a trading range between $US95 and $US105 that has held oil since mid May.

"We still have that gravitational pull toward the $US100 level. Whenever we move a couple bucks from that level, we seem to swing back again," said Jim Ritterbusch, head of oil-trading adviser Ritterbusch and Associates.

US oil stockpiles rose by 2.9 million barrels in the week ended May 27, according to data released by the Department of Energy. Analysts had expected stocks would fall, according to a Dow Jones Newswires survey. Gasoline stocks also rose, adding 2.6 million barrels in the fourth-straight week of increases.

Rising inventories have combined with a string of weak economic reports in recent days to keep pressure on crude oil prices. Yesterday, an index on manufacturing fell short of expectations, while a separate report said the private sector hired 38,000 workers last month, well short of the 190,000 expected by economists.

Early in the latest session, jobless claims saw only a modest decline, suggesting the important monthly jobs report, to be released late tonight (AEST), may be gloomier than analysts had thought.

Many investors have become more pessimistic on the state of the economy over the past month, which has factored into the drop in oil prices from above $US113 a barrel in early May. Concerns are growing that a slowdown in China along with issues related to euro-zone debt will weigh on the global recovery.

Earlier this week, economists from Bank of America-Merrill Lynch lowered their estimates for growth in 2011 US gross domestic product to 2 per cent from 2.8 per cent.

The threat of a slowdown already appears to be contributing to a drop in oil and fuel consumption, as businesses and consumers cut spending in the face of high prices.

US petrol stockpiles have increased for four straight weeks, the Energy Department data showed. In addition, US petrol demand for the Friday before Memorial Day, an important day of travel, fell by 3.7 per cent from a year ago, according to a MasterCard SpendingPulse report released on Tuesday.

"The fact that crude (oil) is still building, still finding its way into storage, it could be that we're seeing a little bit of a slowdown in demand," said Tom Bentz, a director at BNP Paribas Commodity Futures.

"In general, the market is vulnerable because of the weak economic data we've been seeing."

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Oil slides 2.4pc on US demand concerns

Light, sweet crude for July delivery settled down $US2.41, or 2.4 per cent, to $US100.29 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange, which has traded above $US100 a barrel since February, settled down $US2.20, or 1.9 per cent, to $US114.53 a barrel.

Crude ended lower after the ISM manufacturing index fell short of expectations, indicating growth in the energy-intensive manufacturing sector has not been as fast as economists expected. The index fell to 53.5 in May, compared with a forecast for 57. Readings above 50 indicate growth.

April's reading came in at 60.4.

"The manufacturing sector had been a big engine for growth," said Andy Lebow, senior vice-president for energy at MF Global. "It's very significant on the diesel (demand) side."

A separate report said the US private sector hired 38,000 new workers last month, well below the 190,000 expected by economists. The report, by payroll giant Automatic Data Processing and consultancy Macroeconomic Advisers, is also prompting worries about oil demand in the world's largest crude consumer.

"Soft data is what caused all this to happen, started the slide," said Mark Waggoner, president of Excel Futures.

The disappointing jobs reading comes ahead of the most closely watched report on US employment levels, the non-farm payrolls report, due on Friday.

Several reports have suggested the US economy struggled in May. Regional factory reports were weak, jobless claims remained high, and the Conference Board's consumer confidence index fell sharply last month.

Today's decline wiped out yesterday's gains. Oil futures rose more than 2 per cent yesterday on reports that European countries appeared closer to another bailout of Greece, as well as on the outage of TransCanada's Keystone pipeline network.

The pipeline network connects heavy oil fields in Alberta with the Nymex delivery point of Cushing, Oklahoma. Less oil flowing into Cushing is seen as easing the supply glut at the oil hub and supporting the Nymex contract.

The pipeline remained down for repairs today, spokesman Terry Cunha said.

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German Inflation Unexpectedly Eased in May as Price of Crude Oil Declined

Inflation in Germany, Europe’s largest economy, unexpectedly eased in May after oil prices dropped from a 2 1/2-year high.

The harmonized inflation rate fell to 2.4 percent from 2.7 percent in April, the Federal Statistics Office in Wiesbaden said today. Economists had expected inflation to hold at the highest level since September 2008, the median of 17 forecasts in a Bloomberg News survey showed. On the month, consumer prices declined 0.2 percent.

Oil prices have dropped 11 percent this month after breaching $114 a barrel in April, leaving households with more money to spend. European Central Bank officials have signaled they are ready to raise borrowing costs further to curb price pressures after increasing the benchmark interest rate to 1.25 percent last month, even as peripheral nations such as Greece, Portugal and Ireland remain mired in a sovereign-debt crisis.

“Today’s German inflation numbers are just a temporary breather,” said Carsten Brzeski, an economist at ING Group in Brussels. “Obviously, with these inflation numbers, the ECB won’t hastily rush to a June hike. The German data is also not soft enough to put the ECB off from another hike in July.”

On a non-harmonized basis, inflation slowed to 2.3 percent in May from 2.4 percent and prices were unchanged on the month, the statistics office said.
Price Mandate

VCI, the main association of German chemical companies, on May 17 raised its forecast for production, sales and prices this year in the industry, on increasing global demand.

“We have to avoid commodity-price increases becoming entrenched in longer-term inflation expectations, which could have second-round effects on wages and prices,” ECB President Jean-Claude Trichet said yesterday. “We are carefully monitoring the situation and we stand ready to do whatever is necessary to fulfill our mandate.”

Euro-area inflation probably remained at 2.8 percent this month, according to the median of 27 forecasts in a Bloomberg survey. The European Union’s statistics office in Luxembourg will publish the data on May 31. Economists in a separate survey forecast the ECB will raise its main lending rate to 1.75 percent by the end of the year.

The German economy grew 1.5 percent in the first quarter as companies boosted spending to meet increased export demand and construction rebounded from a slump in the previous three months. The government predicts growth of 2.6 percent this year after a record 3.6 percent expansion in 2010.

At the same time, countries from Greece to Portugal are struggling to grow amid a debt crisis that’s shaking the foundations of the single currency. The euro area will grow 1.6 percent this year after expanding 1.8 percent in 2010, the European Commission forecast this month.

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Crude Rises to Highest in Two Weeks on U.S. Fuel Demand; SocGen Sees $106

Oil traded near a two-week high in New York on signs of increased U.S. fuel demand after a government report showed inventories of diesel and heating oil fell in the world’s biggest crude-consuming nation.

Futures reached their highest since May 11 today after the Energy Department said yesterday that U.S. distillate supplies declined 2.04 million barrels to 141.1 million last week, the lowest since April 2009. Fuel demand climbed 2.2 percent. Oil may rise to $106 a barrel in coming weeks as prices mirror an early-May pullback in 2010 that launched a rally in the rest of that year, Societe Generale SA said.

“People are optimistic about a recovery even though the economics suggest otherwise,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. “The fact that oil hasn’t broken through $95 on the downside is the key.”

Crude for July delivery on the New York Mercantile Exchange was at $101.22 a barrel at 9:14 a.m. London time, down 10 cents, after gaining as much as 58 cents to $101.90. Brent crude for July settlement was at $114.73 a barrel, down 23 cents, on the ICE Futures Europe exchange in London. The contract yesterday climbed $2.40, or 2.1 percent, to $114.93, the highest settlement since May 10.

China Power Shortages

“Distillates stole center stage from gasoline on worries about surging demand in China and India,” said Phil Flynn, vice president of research at PFGBest in Chicago.

China may face power shortages of 30 gigawatts this summer, the China Electricity Council said last month. The government suspended diesel exports to increase supplies for use in power generation.

U.S. distillate consumption was the highest since the week ended April 15, according to the Energy Department. Total fuel demand climbed 2.2 percent to 18.9 million barrels a day. Refineries operated at 86.3 percent of capacity, the most since Jan. 7.

Heating oil futures in New York climbed for a third day, gaining as much as 1.97 cents, or 0.7 percent, to $3 a gallon.

U.S. gasoline stockpiles increased 3.79 million barrels to 209.7 million, the biggest addition since February, according to the report. They were forecast to rise 450,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey. Gasoline use dropped 0.3 percent to 9.03 million barrels a day.
Fibonacci Support

Crude oil supplies gained 616,000 barrels to 370.9 million. Stockpiles were forecast to decrease by 1.5 million barrels, according to the survey.

Oil in New York, heading for the first monthly decline since August, has rebounded from its Fibonacci support near $95 a barrel, a level based on weekly price swings over the past year, according to Stephanie Aymes, a cross-commodity technical analyst at Societe Generale. Crude will probably continue to trade “sideways” in coming weeks before climbing to $106, the next Fibonacci retracement level, she said.

Oil also gained after the Organization for Economic Cooperation and Development raised its forecast for U.S. growth this year. The economy will expand 2.6 percent, up from a November estimate of 2.2 percent, the organization said in its annual economic outlook published yesterday. The OECD maintained its forecasts for the world economy to expand 4.2 percent this year and 4.6 percent in 2012.

Schork Report

The dollar declined, making commodities more attractive as an investment. The Dollar Index, a measure of the greenback against six major currencies, fell as much as 0.6 percent today, the biggest decline since April 20.

The Bank of England may raise interest rates after its economy expanded in the first quarter, which may support oil prices, according to Stephen Schork, Villanova, Pennsylvania- based analyst at The Schork Group Inc.

“This would put pressure on the Bank of England to ramp up interest rates which would, in turn, increase the strength of sterling,” he said in today’s Schork Report. “A stronger sterling implies a weaker dollar, and a weaker dollar implies… that’s right, higher crude oil prices.”

Brent crude, the European benchmark contract, traded at a premium of $13.47 a barrel to U.S. futures, compared with $13.61 yesterday. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year.

Brent has advanced 22 percent this year as unrest in the Middle East and North Africa toppled leaders in Tunisia and Egypt and spread to Libya, Iran and Syria. Yemen’s President Ali Abdullah Saleh said fighting could drag the country into civil war and warned that those who seek to disrupt security would be met with force.

The Organization of Petroleum Exporting Countries will leave production quotas unchanged at its June 8 meeting in Vienna because there is enough oil to meet demand, Iraq’s Deputy Prime Minister Hussain al-Shahristani said yesterday.

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Oil prices hit two-week high

Oil prices rose 2% today, climbing to two-week highs as an unexpected drop in US distillate inventories trumped a sharp rise in gasoline stocks and as a softer dollar supported fresh commodities buying.

Inventory data from the US Energy Information Administration showed distillate stocks, which include heating oil and diesel fuel, fell 2.04 million barrels to 141 million barrels last week, the lowest since April 2009.

The data overshadowed a larger-than-expected 3.79 million barrel build in gasoline stocks and an unexpected modest gain of 616,000 barrels in crude stocks.

US crude for July delivery settled $US1.73 higher, or 1.74%, at $US101.32 a barrel, the highest close since May 10.

In London, ICE Brent for July closed up $US2.40, or 2.1%, at $US114.93, also the highest settlement since May 10.

Prices had been lower in the early going on concerns about weak gasoline demand ahead of the US driving season that kicks off on the US Memorial Day holiday on May 30.

"The main component in today's rise in crude futures is the supportive drawdown in distillate stocks," said Rich Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.

"We're also seeing a weaker dollar and higher prices in gold, silver and copper as supportive," he added.

The 19-commodity Reuters-Jefferies CRB index, a global commodities benchmark, rose 1.6%, gaining the most in a week and extending Tuesday's rise of 0.7%.

Oil trading volumes were moderate, with US crude down 18% from the 30-day average, with about an hour to go before the end of the day's trade. Brent crude volume was down about 8% from the 30-day average.

US June heating oil finished up 7.06 cents, or 2.43%, at $US2.9803 a gallon, also the highest since May 10.

Earlier, Brent rose on concerns about unrest in the Middle East and North Africa after violence escalated in Yemen while uncertainty over Libya's future festered as NATO strikes intensified.

South African President Jacob Zuma said he would visit Tripoli next week to discuss an exit strategy for Libyan leader Muammar Gaddafi in cooperation with the Turkish government.

Schism widens on market's course

Sharp upward revisions of oil price forecasts by Wall Street giants Goldman Sachs and Morgan Stanley have deepened the schism between oil bears and bulls to levels unseen since oil prices peaked in 2008, a Reuters monthly poll showed.

While bears cited weak demand and ebbing geopolitical risk premiums as reasons for oil to plunge to $US75 per barrel, bulls saw it soaring to $US140 due to supply shortages and the limited ability of OPEC to cushion any new disruption.

Further signs of weaker economic demand in the US appears to buttress bearish views about the future course of oil prices.

Data today showed a larger-than-expected drop in new orders for long-lasting US manufactured goods in April, the largest decline in six months.

The weak durable goods report could embolden economists to moderate their forecasts for the US second-quarter growth, analysts said.

US dependence on imported oil fell below 50% of total oil demand in 2010 for the first time in more than a decade due to the weak economy and the increasing number of fuel efficient vehicles, a report from the US Energy Department showed today.

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