Oil Is Steady Amid Gain in U.S. Equities, Above Average Supply

Sept. 4 (Bloomberg) -- Crude oil was little changed, falling three cents in three days, amid a gain in U.S. equities and speculation that stockpiles are ample to meet demand in the world’s biggest energy-consuming country.

Oil rose from the day’s lows as the Standard & Poor’s 500 Index had the biggest gain in two weeks. A U.S. Energy Department report on Sept. 2 showed that crude and fuel supplies last week were above the five-year average. Prices have ended the trading session little changed for three days as trading volume fell before this weekend’s U.S. Labor Day holiday.

“Most traders are looking forward to a long weekend at the beach, and not thinking about the tankers that are waiting offshore,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “There is a lot of product on hand as we go into maintenance season. Demand for crude oil is going to drop in coming weeks.”

Crude oil for October delivery rose 6 cents to settle at $68.02 a barrel at 2:53 p.m. on the New York Mercantile Exchange. Oil declined 6.5 percent this week, the biggest drop since the week ended July 10, as early gains during each trading session have been slashed before the close. Futures are up 53 percent this year.

Brent crude oil for October settlement on the London-based ICE Futures Europe exchange decreased 30 cents, or 0.4 percent, to end the session at $66.82 a barrel. It was the lowest closing price since July 29. The contract fell 8.2 percent this week, the biggest weekly decline this year.

The S&P 500 Index rose 1.3 percent to 1,016.27 at 4:01 p.m. in New York and the Dow Jones Industrial Average increased 1 percent to 9,440.74.

Labor Day Holiday

There will be no floor trading in New York on Sept. 7 because of the Labor Day holiday.

U.S. crude-oil supplies fell 372,000 barrels to 343.4 million last week, the Energy Department reported Sept. 2. The decline left stockpiles 11 percent higher than the five-year average for the period, according to the department.

Gasoline inventories declined 2.97 million barrels to 205.1 million, the sixth straight drop, the report showed. Supplies of the motor fuel were 2.3 percent higher than the five-year average. Stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 1.18 million barrels to 163.6 million, the highest level since October 1983.

Gasoline consumption ebbs after the end of the so-called driving season, which lasts from the Memorial Day weekend in late May to the Labor Day holiday. U.S. refineries often idle units for maintenance in September and October as gasoline demand falls and before heating-oil use rises.

Technical Weakness

“From a technical viewpoint, we are looking at weakness,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage. “Once the holiday is over there may be further downward pressure.”

Oil is on a “slippery slope” after failing to break through resistance and is set to test $60.43 a barrel, according to technical analysis by Auerbach Grayson, a brokerage in New York. The failure of October futures to breach $75.27, the June 11 high, has made crude vulnerable to a “significant decline,” said Richard Ross, a technical analyst at Auerbach Grayson.

“We are right on a precipice here and are at a very important inflection point,” Ross said in a telephone interview. Settling below $68 a barrel yesterday “opens the door to testing $65 and $60.43, which was the low on July 13.”

The Organization of Petroleum Exporting Countries is scheduled to meet in Vienna on Sept. 9 to discuss production targets. Members have implemented about 71 percent of the 4.2 million barrels a day of supply cuts agreed to last year, according to data compiled by Bloomberg News. The group has called for greater compliance with existing quotas at meetings this year.

OPEC Aims

“What OPEC wants to do is cut inventories,” T. Boone Pickens, the founder and chairman of Dallas-based BP Capital LLC, said today in an interview on Bloomberg Television. “You will start seeing inventories fall pretty quickly.”

Jose Maria de Botelho Vasconcelos, the organization’s president and Angolan oil minister, said on Sept. 2 that the 12- member group would hold its current course to avoid higher oil prices derailing the global economic recovery.

Futures may fall next week, according to a weekly Bloomberg News survey. Seventeen of 34 analysts surveyed, or 50 percent, said futures will drop through Sept. 11. Eight respondents, or 24 percent, forecast that the market will rise and nine said prices will be little changed.

Oil volume in electronic trading on the Nymex was 368,728 contracts as of 3:28 p.m. in New York. Volume totaled 431,086 contracts yesterday, 20 percent lower than the average over the past three months. Open interest was 1.17 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.