Oil Falls to Two-Week Low on Speculation Demand Recovery Weak

Nov. 2 (Bloomberg) -- Crude oil fell to a two-week low on speculation the global economic recovery remains weak and dependent on government stimulus for sustained growth.

A report today in the U.S., the world’s largest oil consumer, will probably show construction spending fell 0.2 percent in September, after rising from a five-year low in July. OPEC members probably increased crude production last month to benefit as prices climbed to a one-year high, according to a Bloomberg News survey.

“It’s been very much a pre-emptive move in oil,” said Toby Hassall, research analyst with CWA Global Markets Pty in Sydney. “It wouldn’t be surprising to see oil drift back into the low $70s if we see equities sell off further at the beginning of this week.”

Crude oil for December delivery fell as much as 44 cents, or 0.6 percent, to $76.56 a barrel in after-hours electronic trading on the New York Mercantile Exchange, its lowest intraday price since Oct. 15. It was at $76.63 at 10:51 a.m. in Sydney.

The contract dropped 4.3 percent last week, its first decline in a month, after U.S. oil and gasoline stockpiles rose, equity prices fell and a stronger dollar reduced the appeal of commodities. Prices slumped 3.6 percent on Oct. 30 after a report showed U.S. consumer spending fell for the first time in five months in September.

Brent crude for December settlement fell 21 cents, or 0.3 percent, to $74.99 a barrel on the London-based ICE Futures Europe exchange at 10:48 a.m. in Sydney. It dropped 3.6 percent to $75.20 on Oct. 30.

‘Tough’ Economy

The U.S. economy is still tough for “huge numbers of American businesses” and the recovery will take time, Treasury Secretary Timothy Geithner said in an interview on NBC’s “Meet the Press” program.

“It could be a little choppy. It could be uneven. And it’s going to take awhile,” he said.

The world risks a second slump if nations withdraw government stimulus programs too soon, Chinese Commerce Minister Chen Deming told an economics conference in Shanghai Oct. 31.

“There are still many uncertainties,” he said. If countries “withdraw the stimulus measures now, the global economy will plunge.”

New York oil futures climbed to a one-year high of $82 a barrel on Oct. 21 as the dollar slid to a 14-month low against a basket of major currencies. Prices gained 72 percent the past eight months as rising equity markets emboldened investors and the weaker dollar steered funds into commodities.

Equities, Dollar

The Standard & Poor’s 500 Index slumped 4 percent last week, its biggest decline since mid-May. Further weakness may be enough to slow the dollar’s decline and undermine the short-term outlook for commodities, Hassall said.

“If equities sell off further, that will see a further advance in the dollar which might call into question bullish positions in commodities,” he said. “Medium-term, that recovery story, you’d have to say, remains in place.”

Hedge-fund managers and other large speculators increased their bets on rising oil prices to a 19-month high last week, according to U.S. Commodity Futures Trading Commission data.

Speculative net-long positions, the difference between orders to buy and sell the commodity, jumped 47 percent to 109,619 contracts in the week ended Oct. 27, the commission said Oct. 30. They are at their highest since March 14, 2008.