Thursday, April 8, 2010

Oil Drops a Second Day as U.S. Supplies Gain More Than Forecast

April 8 (Bloomberg) -- Oil declined for a second day after a government report yesterday showed a bigger-than-forecast inventory gain in the U.S., the world’s largest energy consumer.

Oil dropped as the Energy Department said crude supplies rose 1.98 million barrels to 356.2 million last week. Stockpiles were expected to climb by 1.35 million barrels, according to a Bloomberg News analyst survey. Machinery orders in Japan, the world’s third largest oil user, unexpectedly declined in February, raising concerns on future economic output.

“Oil was getting a little bit frothy and probably out of line with where the fundamentals are at the moment,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “We had a rise in crude stocks, which is not an isolated incident. It does seem that the supply overhang in the U.S. isn’t being properly addressed.”

Crude oil for May delivery fell as much as 39 cents, or 0.5 percent, to $85.49 a barrel and was at $85.60 in electronic trading on the New York Mercantile Exchange at 9:35 a.m. Singapore time. Yesterday, the contract slipped 96 cents, or 1.1 percent, to settle at $85.88, dropping from an 18-month intraday high of $87.09 made April 6.

Orders for factory equipment and items such as power generators, an indicator of business investment in three to six months, declined 5.4 percent from January, the Cabinet Office said today in Tokyo. The median estimate of 31 economists surveyed by Bloomberg was for a 3.7 percent gain.

Dollar Gains

Oil also dropped as the dollar gained against the euro. A stronger U.S. currency reduces the investment appeal of commodities. The greenback fell 0.2 percent to $1.3318 per euro at 9:34 a.m. in Singapore after easing 0.4 percent yesterday.

The euro fell against the dollar amid speculation Greece may default on its debt as early as this year, even as leaders tried to dispel fears the nation is unhappy with a bailout plan.

Imports of crude oil last week gained 5.5 percent to 9.56 million barrels a day, the most since September, the Energy Department report showed. Fuel imports climbed 7.5 percent to 2.76 million barrels a day, the highest level since the week ended Feb. 5.

Stockpiles of distillate fuel, a category that includes heating oil and diesel, increased 1.07 million barrels to 145.7 million, the first gain in 10 weeks. A 1.13 million-barrel drop was forecast, according to the median of 14 responses by analysts in the Bloomberg News survey.

Gasoline supplies fell 2.5 million barrels to 222.4 million, the report showed. A 1 million-barrel decline was forecast.

Refineries operated at 84.5 percent of capacity, the highest rate since the week ended Oct. 2. The gain in refinery operating rates has coincided with a drop in the profit margin, or crack spread, for refining crude.

Crack Declines

The profit from producing two barrels of gasoline and one of diesel fuel from three barrels of crude, the 3-2-1 crack, has dropped 12 percent to $10.44 a barrel today since reaching a high this year of $11.89 a barrel.

Europe’s economy stagnated in the fourth quarter as companies cut spending. Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4 percent, the European Union’s statistics office in Luxembourg said yesterday. It had previously reported a fourth-quarter expansion of 0.1 percent.

Brent crude oil for May settlement fell as much as 40 cents, or 0.5 percent to $85.19 a barrel on the London-based ICE Futures Europe exchange. It was at $85.23 at 9:23 a.m. Singapore time. The contract fell 56 cents, or 0.7 percent, to end the session at $85.59 a barrel yesterday.