Oil Falls for a Second Day as Recession May Reduce Fuel Demand

March 2 (Bloomberg) -- Crude oil fell for a second day in New York on signs that the global recession will shutter more factories and cause increased job losses in the U.S., limiting fuel demand.

An Institute of Supply Management report today may show U.S. manufacturing contracted in February from the previous month, according to a Bloomberg survey of economists. Japan’s factory output dropped 10 percent in January, the Trade Ministry said Feb. 27. The two countries account for about 30 percent of global oil consumption.

“The bigger picture remains one of economic weakness in the U.S.,” said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. “The economic data that was out on Friday was so dreadful, particularly the Japan industrial production figures, that it raises concerns about weakness in commodity consumption, including oil.”

Crude oil for April delivery fell as much as 76 cents, or 1.7 percent, to $44 a barrel in electronic trading on the New York Mercantile Exchange. It was at $44.13 a barrel at 8:38 a.m. Singapore time.

On Feb. 27, the contract declined 46 cents, or 1 percent, to settle at $44.76 a barrel. Prices are down 1.2 percent so far this year. Futures have dropped 70 percent from the record $147.27 a barrel reached on July 11.

Brent crude oil for April settlement fell as much as 80 cents, or 1.7 percent, to $45.55 a barrel on London’s ICE Futures Europe exchange. It was at $45.57 at 8:33 a.m. Singapore time. The contract declined 16 cents, or 0.3 percent, to end the session at $46.35 a barrel on Feb. 27.

The Institute for Supply Management’s factory index to be released today fell to 34 in February from 35.6 the prior month, according to the survey median. A reading of 50 is the dividing line between growth and contraction.

OPEC Comments

U.S. employers may have cut payrolls by 650,000, the most since 1949, and the jobless rate probably surged to 7.9 percent, according to the median estimates in a Bloomberg News survey ahead of Labor Department figures March 6.

Officials from OPEC, the supplier of 40 percent of the world’s oil, gave conflicting signals on their intentions to further cut output to bolster prices when they meet in Vienna on March 15.

The group “will likely” reduce supplies to support prices when it gathers, Algerian Oil Minister Chakib Khelil said on Feb. 28 in Algiers. He is the previous president of the Organization of Petroleum Exporting Countries.

Yesterday, Iran’s oil minister said OPEC is unlikely to lower crude production when it meets.

“I don’t believe we will go toward another production cut,” Gholamhossein Nozari said in comments posted on the Web site of state-run Iranian Students News Agency. “In this meeting we will need to review the economic situation in 2009 and 2010.”

Long Positions Fall

Crude oil, which fell to a five-year low of $33.87 on Dec. 19, has rebounded as OPEC has restricted supply. At its last meeting in December, members agreed to a record 9 percent reduction in supply targets effective Jan. 1, extending two earlier resolutions to curb production as the global economy sank into a recession, straining the budgets of crude exporters.

Hedge-fund managers and other large speculators decreased their net-long position in New York crude-oil futures in the week ended Feb. 24, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 28,749 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 16,267 contracts, or 36 percent, from a week earlier.