Monday, May 30, 2011

Oil drops as US Economy Weakens


Oil dropped in New York, headed for its first monthly decline since August, on speculation fuel demand may falter amid a slowdown in the U.S. economic recovery and Europe’s continuing debt crisis.
Futures slipped as much as 1 percent before reports this week that may show U.S. employers hired fewer workers in May and manufacturing cooled. Oil also dropped as concern that European governments will struggle to resolve the region’s debt crises weakened the euro against the dollar, reducing the appeal of commodities priced in the U.S. currency. Trading volumes were lower than average, with public holidays in the U.S. and U.K.
“The dollar is a bit stronger today, which is a negative factor for prices,” said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. Greek debt problems “weigh on the euro.”
Crude for July delivery fell as much as 99 cents to $99.60 in electronic trading on the New York Mercantile Exchange and was at $100.12 at 1:42 p.m. London time. Prices have fallen 12 percent this month. Brent oil for July settlement lost 35 cents, or 0.3 percent, to $114.68 on the ICE Futures Europe exchange in London. The contract has fallen 8.9 percent this month.
U.S. floor trading is closed today for the Memorial Day holiday and electronic trades will be booked with tomorrow’s transactions for settlement purposes.
The European benchmark contract traded at a premium of $14.56 a barrel to U.S. futures. 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.
U.S. Economy
The dollar gained 0.3 percent to trade at $1.4277 against the euro after Greek Prime MinisterGeorge Papandreou said he’ll press ahead with new austerity measures even as he failed to win backing from opposition parties. A strengthening dollar limits the appeal of commodities priced in the currency as a hedge against inflation.
U.S. manufacturing, which accounts for about 12 percent of the world’s biggest economy, will probably cool following its strongest showing in seven years. The Institute for Supply Management’s factory index fell to 57.6 this month, the lowest level since October, according median forecast in the Bloomberg survey of economists. The Labor Department may say on June 3 payrolls rose 185,000 after a 244,000 gain in April, according to a separate survey.
Employment Data
“The employment data will be the key this week to really see what’s happening” in the U.S., saidJonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year.
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, Iran and Syria. Libya’s rebels are unlikely to resume crude production from territory under their control for “some time,” Reuters reported yesterday, citing Ali Tarhouni, the dissidents’ oil and finance minister.
Hedge-fund managers and other large speculators increased their net-long position in crude futures in the week ended May 24, according to Commodity Futures Trading Commission data.
Managed-money bets, in futures and options combined, that prices will rise outnumbered short positions by 225,677 futures, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions increased by 4,112 contracts, or 1.86 percent, from a week earlier.
Source: www.bloomberg.com
Vivek Agrawal
Summer Intern-Fundamental Analysis
DENIP Consultants Private Limited.

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