Oil, Gasoline, Fall on Record European Industrial Output Drop

June 12 (Bloomberg) -- Crude oil and gasoline fell for the first time in four days as a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature.

Futures dropped from a seven-month high after a report showed that output in the euro region declined 21.6 percent from a year earlier. The dollar strengthened, undermining the attractiveness of commodities as an alternative investment. OPEC said members raised production in May for a second month, straying further from quotas.

“Crude had such a powerful rally that it was vulnerable to a correction,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The negative economic numbers from the euro zone got it going. The dollar got stronger on the news from Europe, which has hit crude.”

Crude oil for July delivery fell 64 cents, or 0.9 percent, to settle at $72.04 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures have gained 62 percent this year.

Yesterday, the contract rose $1.35, or 1.9 percent, to $72.68 a barrel, the highest settlement since Oct. 20. Prices increased 5.3 percent this week.

Gasoline for July delivery declined 2.18 cents, or 1.1 percent, to end the session at $2.0431 a gallon in New York.

“The market has excessively priced in the idea that a demand recovery is imminent,” said Eugen Weinberg, an analyst with Commerzbank AG in Frankfurt. “Upbeat sentiment might drive prices higher in the short term, but later in the summer fundamentals will play a larger role and a massive price correction is likely.”

European Output

Production in the 16-member euro region plunged the most since the data series started in 1986, the European Union’s statistics office in Luxembourg said today. Economists expected a 19.8 percent decline, according to a Bloomberg News survey. From March, output declined 1.9 percent.

“Today’s move just shows how this market is getting its cue from the dollar,” said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management LLC, an investment advisory and management firm. “Commodities are down pretty much across the board today because of the dollar’s move higher.”

The dollar strengthened 0.7 percent to $1.4017 per euro, from $1.4108 yesterday. The dollar may briefly weaken above $1.50 against the euro before September as central banks sell the currency, Thomas Stolper, an analyst for Goldman Sachs Group Inc. in London, said on June 11.

“Money is coming out from under those mattresses,” Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, said today on Bloomberg Radio. “A falling dollar can induce people to put money into commodities.”

Technical Analysis

Oil is poised to reach $75 a barrel after rising above $73 yesterday, according to technical analysis by Newedge USA LLC. The next resistance level that oil will meet is at $75, then $78.25, said Veronique Lashinski, a senior research analyst for Newedge in Chicago. Prices last topped $78.25 on Oct. 15 when they touched $79.17.

“It’s still pointing higher,” Lashinski said in an interview yesterday. “The weekly continuation chart is very strong.”

The 11 members of the Organization of Petroleum Exporting Countries bound by production targets, all except Iraq, pumped 25.903 million barrels a day in May, an increase of 118,800 barrels a day from April, the Vienna-based group said in its monthly oil report today, citing secondary sources that include estimates from analysts and news organizations.

OPEC has implemented 75 percent of planned output cuts of 4.2 million barrels a day, compared with 77 percent in April, based on data in the report.

Chinese Fuel Production

China, the world’s second-biggest energy-consuming country, processed a record volume of crude oil in May as higher factory output and a jump in car sales increased fuel demand. Refineries processed 31.2 million metric tons, or about 7.4 million barrels a day, of crude into fuels, China Mainland Marketing Research Co., which compiles data for the government, said in a statement today.

“This is real news that’s pointing to increased Chinese demand,” O’Grady said. “This shows they are actually using all the oil they import, not just putting it away in storage.”

Brent crude for July delivery fell 87 cents, or 1.2 percent, to settle at $70.92 a barrel on London’s ICE Futures Europe exchange. Yesterday, the contract rose 99 cents, or 1.4 percent, to $71.79, the highest settlement since Oct. 20.

Crude oil volume in electronic trading on the Nymex was 373,710 contracts as of 2:58 p.m. in New York. Volume totaled 651,848 contracts yesterday, 29 percent higher than the average over the past three months. Open interest was 1.23 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.