Crude Oil Falls as China Quells Additional Stimulus Speculation

March 5 (Bloomberg) -- Crude oil fell after China quelled speculation that the government will add to its stimulus plan and Goldman Sachs Group Inc. said the global recession is worsening.

Oil dropped 3.9 percent after Chinese Premier Wen Jiabao said today that the country’s 8 percent growth target for this year is within reach, indicating he doesn’t see the need to increase spending. Commodities surged yesterday on signs that Wen would announce a new program. Goldman Sachs forecast that the world economy will shrink 0.6 percent this year.

“All of the negative news about the economy is keeping the market under pressure,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “It looked like oil might break out to the upside yesterday, but in the end it failed.”

Crude oil for April delivery fell $1.77 to settle at $43.61 a barrel at 2:49 p.m. on the New York Mercantile Exchange. Prices are down 2.2 percent so far this year.

Orders placed with U.S. factories fell in January for a sixth consecutive month, reflecting a pullback in business spending that will probably deepen what may become the worst recession in seven decades. Bookings declined 1.9 percent, less than forecast, after a revised 4.9 percent drop in December, the Commerce Department said today in Washington.

A Labor Department report showed that 639,000 Americans made first-time unemployment applications. It was the fifth week that more than 600,000 Americans filed first-time claims for benefits.

The Standard & Poor’s 500 Index fell to the lowest level since 1996. The S&P 500 lost 4.4 percent to 681.42 at 3:25 p.m., and reached 681.81 earlier today.

The U.S. and China are the biggest oil-consuming countries, responsible for 33 percent of global demand in 2007, according to BP Plc, which publishes its BP Annual Statistical Review of World Energy each June.

Challenging Environment

“The economic environment overall is still likely to remain challenging and uncertainty is high,” Goldman’s London-based economist Binit Patel said today in a report to clients. He had previously forecast a 0.2 percent decline this year.

The Organization of Petroleum Exporting Countries, due to meet again on March 15, cut output by 2.7 percent in February, a Bloomberg News survey showed. OPEC production averaged 27.78 million barrels a day last month, down 770,000 from January, according to the survey of oil companies, producers and analysts.

OPEC will reduce crude-oil shipments by 1.9 percent in the month ending March 21, according to Oil Movements. Members will load 22.67 million barrels a day in the period, down from 23.1 million a day in the month ended Feb. 21, the Halifax, England- based based tanker tracker said in a report today.

“You aren’t going to see prices move much higher until there is clear evidence that the drop in the economy is over and OPEC cuts are working well enough to control inventories,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington.

U.S. Stockpiles

Crude oil supplies in the U.S. fell 757,000 barrels to 350.6 million barrels in the week ended Feb. 27, the Energy Department said in a report yesterday. Inventories were forecast to rise by 1 million barrels, according to the median of analyst estimates in a Bloomberg News survey.

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered, declined 553,000 barrels to 34 million barrels last week, the report showed. Inventories in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.

The drop in Cushing supplies has narrowed the discount of WTI to the U.K.’s Brent oil.

Burst Bubble

Brent crude oil for April settlement declined $2.48, or 5.4 percent, to end the session at $43.64 a barrel on London’s ICE Futures Europe exchange. The discount of oil in New York to Brent weakened to 3 cents a barrel, the lowest since Dec. 11 when the U.S. futures last traded at a premium.

“I do not believe we will see $100-per-barrel oil for many years to come,” Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York, said on Bloomberg Television. “The bubble has burst.” Oil touched a record $147.27 a barrel in July.

U.S. gasoline consumption averaged 9 million barrels a day over the past four weeks, up 2.2 percent from a year earlier, yesterday’s Energy Department report showed.

Inflection Point

“We could be at an inflection point,” said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. “The drawdown in Cushing and the gasoline demand numbers may signal the beginning of a turn in market sentiment. We will have to pay close attention to the reports that are released over the next two to four weeks.”

Gasoline futures for April delivery fell 6.89 cents, or 5 percent, to $1.3127 a gallon in New York. It was the biggest drop since Feb. 17.

The average U.S. pump price for regular gasoline was unchanged at $1.933 a gallon, AAA, the nation’s largest motorist organization, said on its Web site. Prices have declined 53 percent from the record $4.114 a gallon reached in July.

Crude oil volume in electronic trading on the exchange was 439,007 contracts as of 3:06 p.m. in New York. Volume totaled 634,640 contracts yesterday, 17 percent higher than the average over the past three months. Open interest was 1.21 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.