Crude Oil Tumbles to a One-Month Low as Equities Decline

Jan. 22 (Bloomberg) -- Crude oil fell to a one-month low after equities dropped on President Barack Obama’s proposed restrictions on risk-taking at financial institutions and speculation China will raise interest rates.

Oil tumbled 2 percent as stocks decreased on the administration’s plan to bar banks from trading for their own accounts. U.S. refineries ran at 78.4 percent of capacity last week, the lowest rate outside the Atlantic hurricane season since at least 1989, the Energy Department said yesterday.

“A general malaise has crept into all the markets because of uncertainty about the Obama administration’s proposals to regulate the financial industry,” said John Kilduff, a partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy commodities. “The Chinese news has also been an important factor this week.”

Crude oil for March delivery fell $1.54 to $74.54 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 22. Futures are up 71 percent from a year ago.

March oil dropped 4.9 percent this week as declines in equity markets dented investor confidence and a stronger dollar reduced the appeal of commodities as an alternate investment.

The Standard & Poor’s 500 Index slipped 1.7 percent to 1,097.74, with the financial sector down 3.1 percent. The Dow Jones Industrial Average declined 1.9 percent to 10,194.29.

“Weak demand, China, risk aversion, downturn in equities, it’s a laundry list and a fairly ugly reversal,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas.

Proprietary Trading

President Obama’s plan will affect commodities trading done by “all the banks,” said Damian Honey, a partner at the law firm of Holman Fenwick Willan LLP in London.

“They will either have to sell off proprietary trading or will carve it off into a separate entity,” said Honey, who has worked with banks on their commodities business for 13 years. “The worst case might be divesting themselves of the proprietary trading business.”

The Reuters/Jefferies CRB Index of 19 commodities declined 0.8 percent to 275.43, the lowest since Dec. 22. Gold futures for February delivery slipped $13.50, or 1.2 percent, to settle at $1,089.70 an ounce on the Comex division of the Nymex. It’s the first time gold closed below $1,100 this year.

China’s 10.7 percent growth in the fourth quarter ignited concern that the nations responsible for leading the world out of a recession will raise borrowing costs to keep their economies from overheating. China is the second-biggest energy consumer after the U.S.

Chinese Risk

Goldman Sachs Group Inc. said it sees “significant upside risk” to its forecast for China’s oil demand this year, analysts including Jeffrey Currie said in an e-mailed report today. Goldman analysts had forecast demand growth of 625,000 barrels a day in 2010.

Gasoline inventories climbed 3.95 million barrels to 227.4 million last week, the highest level since March 2008, the Energy Department said. Supplies of gasoline, crude oil and distillate fuel, a category that includes heating oil and diesel, were above the five-year average for the week.

Gasoline for February delivery declined 1.72 cents, or 0.9 percent, to end the session at $1.9657 a gallon in New York, the lowest settlement since Dec. 22. Heating oil for February delivery slipped 4.4 cents, or 2.2 percent, to $1.9416 a gallon, the lowest close since Dec. 15.

U.S. fuel consumption in the past four weeks dropped 1.8 percent from a year earlier, the report showed.

“There’s room for a further move to the downside,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Inventory levels are still very, very high for this time of year and demand is weak.”

Price Outlook

Crude oil may fall next week as U.S. fuel use declines and refineries idle units, a Bloomberg News survey showed. Eighteen of 42 analysts and traders, or 43 percent, said oil will drop through Jan. 29. Sixteen respondents, or 38 percent, forecast an increase and eight said prices will be little changed.

Brent oil for March settlement slipped $1.75, or 2.3 percent, to end the session at $72.83 a barrel on the London- based ICE Futures Europe exchange. It was the lowest settlement since Dec. 15. Brent is trading at a $1.71 a barrel discount to the New York contract, the most since Dec. 24. Higher U.S. prices may attract shipments from the North Sea.

Oil volume in electronic trading on the Nymex was 537,776 contracts as of 3:21 p.m. in New York. Volume totaled 506,795 contracts yesterday, 10 percent below the average of the past three months. Open interest was 1.33 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.