Oil Falls a Second Day on U.S. Equity Markets, Higher Supplies

May 12 (Bloomberg) -- Crude oil fell for a second day after U.S. equities declined from a four-month high and on expectations that inventories will increase for a 10th week.

Oil followed equity markets lower, reversing gains made last week after the U.S. economy lost fewer jobs than expected. The Standard & Poor’s 500 Index declined 2.2 percent while the Dow Jones Industrial Average dropped 1.8 percent.

“The correlation with the U.S. equity markets is very high at the moment,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “I think the market is a little ahead of itself and it’s no surprise to see a bit of a pullback.”

Crude oil for June delivery fell as much as 44 cents to $58.06 a barrel and was at $58.23 on the New York Mercantile Exchange at 10:00 a.m. in Sydney. Yesterday, the contract dropped as much as $1.85, or 3.2 percent, to $56.78 a barrel before settling at $58.50. Prices are up 31 percent this year.

U.S. stockpiles probably rose for a 10th week, gaining 1 million barrels last week, according to the median of 12 responses in a Bloomberg News survey. They climbed to 375.3 million barrels during the week ended May 1, according to the Energy Department.

“Unless we see some really deteriorating numbers out of the U.S. in the way of economic data, I don’t see the oil price coming back further than the current levels,” Pervan said.

Saudi Shipments

Saudi Arabian Oil Co., the world’s biggest state oil company, maintained cuts in contracted supplies of crude oil to Asia in June, refinery officials said.

The Dhahran, Saudi Arabia-based producer will keep in place reductions in shipments to refiners of between 10 percent and 15 percent from levels agreed under annual contracts, according to officials at processors in China, Japan, Taiwan and South Korea who received notices from the company. The officials asked to remain anonymous, citing confidentiality agreements.

This marks the seventh straight month of output cuts by Saudi Aramco. The Organization of Petroleum Exporting Countries agreed at three meetings last year that the 11 members with quotas would reduce production by 4.2 million barrels a day.

“The next OPEC meeting is less than three weeks away and will be discussed many times over until it actually happens,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “This will subconsciously play a huge part in the market and will help divert any chance of a large swing down until after the meeting.”

Gasoline Futures

Gasoline futures for July delivery are poised to rise above $1.70 a gallon, according to technical analysis by Newedge USA LLC.

“As long as gasoline remains above $1.635, it is positioned to challenge significant resistance around $1.70,” Veronique Lashinkski, a senior research analyst for Newedge USA LLC in Chicago, said in a report on May 8.

Gasoline futures for June delivery dropped 2.53 cents, or 1.5 percent, to settle at $1.6802 a gallon in New York.

Gasoline supplies probably rose 250,000 barrels from 212.4 million the prior week, according to the Bloomberg News survey of analysts. Stockpiles of distillate fuel, a category that includes heating oil and diesel, probably increased 1.03 million barrels from 146.5 million.

Total daily fuel demand averaged 18.2 million barrels in the four weeks ended May 1, down 7.9 percent from a year earlier, the department said. It was the lowest consumption level for a four-week period since May 1999.

Oil surged to a record $147.27 a barrel on July 11 as investors purchased commodities amid concern that rising demand in China and other emerging economies would outpace production.

Chinese consumer prices fell 1.5 percent in April from a year earlier, the nation’s statistics bureau said in Beijing yesterday. China is the world’s second-biggest oil consumer.

Brent crude oil for June settlement rose 0.5 percent to $57.40 a barrel at 10:12 a.m. Sydney time. It declined 66 cents, or 1.1 percent, to end the session at $57.48 a barrel on London’s ICE Futures Europe exchange yesterday.