Oil Set for Biggest Weekly Drop Since July on Recovery Concern

Sept. 25 (Bloomberg) -- Oil in New York is poised for its biggest weekly drop since July after U.S. sales of existing homes unexpectedly slumped, bolstering skepticism about the pace of recovery in the biggest energy consuming nation.

Oil has dropped 9 percent this week as an Energy Information Administration report showed a gain in U.S. fuel stockpiles, boosting speculation of a supply glut. Prices are also under pressure from a stronger dollar, which reduces the appeal of commodities as an inflation hedge.

“The home sales data in the U.S. was a trigger that contributed to a tumble in the oil price,” said David Moore, a commodity strategist with Commonwealth Bank of Australia. “The oil data from the EIA is relatively bearish, and on top of that the U.S. dollar recovered a little bit of ground.”

Crude oil for November delivery traded at $65.87 a barrel, down 2 cents, on the New York Mercantile Exchange at 9:56 a.m. in Sydney. Futures, which dropped 4.5 percent yesterday, are headed for the biggest decline since the week ended July 10. Prices have advanced 48 percent since the start of the year.

U.S. equities fell for a second day yesterday as sales of existing homes slumped and the Federal Reserve said it will cut the size of two programs meant to bolster credit markets. The Standard & Poor’s 500 Index lost 1 percent in New York and the Dow Jones Industrial Average slipped 0.4 percent.

The dollar gained 0.1 percent to $1.4649 per euro at 9:57 in Sydney, from $1.4666 yesterday.

Supplies Increase

“We expect a hesitant recovery in the U.S. and in that context we’re going to get bits of data that disappoint, and that’s what we saw last night,” Moore said.

Supplies of crude oil rose 2.86 million barrels, to 335.6 million, the biggest increase since the week ended July 24, according to the Energy Department report released Sept. 23. Analysts had expected a 1.4 million-barrel decrease. The gain left stockpiles 9.1 percent above the five-year average.

U.S. gasoline stockpiles surged 5.41 million barrels last week, more than 10 times the gain forecast by analysts in a Bloomberg News survey, according to the report. Demand for the fuel slipped 2.3 percent to 8.79 million barrels a day, the lowest since January.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose 2.96 million barrels, almost double analyst estimates.

“There has been a lot of talk about green shoots, but we are still shedding jobs and oil demand is still going to drop by 2 million barrels this year,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “There comes a point when you have to pay attention to the fundamentals.”

Brent crude for November settlement rose 1 cent to $64.83 a barrel on the London-based ICE Futures Europe exchange at 10:06 a.m. Sydney time. Yesterday, the contract dropped $3.17, or 4.7 percent, to $64.82.