Oil Caps the Biggest Weekly Fall Since January on Demand Drop

July 10 (Bloomberg) -- Crude oil fell, capping its biggest weekly decline since January, on concern the global recession will curb energy consumption and as a stronger dollar reduced demand for commodities.

Oil has plunged 10 percent this week on speculation fuel use in the U.S., the biggest energy-using nation, will drop. The greenback has risen 0.7 percent against most major currencies since the beginning of the month.

“Prices surged higher on green shoots of an economic revival, but a deeper look shows that the situation is still poor,” said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York. “It’s hard to make a case for a revival of demand anytime soon.”

Crude oil for August delivery fell 52 cents, or 0.9 percent, to $59.89 a barrel at 2:55 p.m. on the New York Mercantile Exchange, the lowest settlement since May 19. Oil has dropped 59 percent from a record $147.27 a barrel reached on July 11, 2008.

Gasoline for August delivery slipped 1.33 cents, or 0.8 percent, to end the session at $1.6505 a gallon in New York. The contract declined to $1.6241 yesterday, the lowest intraday price since May 7.

“I think we are heading for $55,” said Daniel Flynn, a broker at PFGBest, a Chicago-based brokerage. “There’s evidence that the economy will be slow to recover. There’s nothing out there now to propel the market higher.”

Confidence among U.S. consumers fell more than forecast this month. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 64.6, the lowest since March, from 70.8 in June. The index averaged 89.2 during the expansion that began in late 2001 and ended in December 2007.

Global Consumption

Worldwide consumption of crude oil will increase by 1.4 million barrels, or 1.7 percent, to 85.2 million barrels a day next year, the International Energy Agency said today in its first monthly report to include a forecast for 2010.

The International Monetary Fund, in an outlook released this week, estimated that the world economy will expand by 2.5 percent in 2010. The IEA said its 2010 view may remain “broadly unchanged” once it includes the latest IMF forecast. The IEA used the fund’s April projection of 1.9 percent growth when preparing today’s report.

“The IEA has made a pretty brave forecast,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “There are doubts about how realistic these demand projections are given the rate of economic growth. Global growth has averaged 3.5 percent in the recent decades, so 2.5 percent growth is nothing to write home about.”

Rising Stockpiles

Crude oil and fuel stockpiles in the members of the Organization for Economic Cooperation and Development rose to 2.77 billion barrels in May, about 7 percent more than last year’s level, according to the IEA. The Paris-based OECD is composed of 30 industrialized countries.

The Commodity Futures Trading Commission announced on July 7 that it may clamp down on oil and natural-gas price speculators by limiting the holdings of energy futures traders, including index and exchange-traded funds.

“Oil is getting it from all fronts,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “The economy is not rebounding anytime soon, the CFTC is nosing around in energy trading and possibly limiting contract sizes and the dollar is no longer the whipping boy.”

Dollar Climbs

The dollar advanced 0.5 percent to $1.3946 per euro from 1.402 yesterday. The U.S. currency also gained against the pound, Swiss franc and Swedish kronor.

Brent crude for August settlement declined 58 cents, or 0.9 percent, to end the session at $60.52 a barrel on London’s ICE Futures Europe exchange.

The Organization of Petroleum Exporting Countries increased production for a second month in June, straying further from its official quotas, the IEA report showed.

The 11 OPEC members bound by targets raised output to 26.2 million barrels a day. That lowers the group’s compliance rate with record supply cuts announced last year to 68 percent, compared with an estimate of 74 percent in last month’s report. The 11 members have a ceiling of 24.845 million barrels a day.

OPEC ministers are scheduled to discuss production targets at a Sept. 9 meeting in Vienna.

Oil may fall next week on speculation the global recession and payroll cuts will constrain demand, a Bloomberg News survey of analysts showed. Nineteen of 41 analysts surveyed, or 46 percent, said futures will decline. Nine expect the market will be little changed and 13 forecast that oil prices will rise.

Crude oil volume in electronic trading on the Nymex was 432,333 contracts as of 3:03 p.m. in New York. Volume totaled 568,577 contracts yesterday, 14 percent higher than the average over the past three months. Open interest was 1.16 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.