Oil Trades Near Seven-Day Low as Productivity Drop Casts Doubt on Recovery

Crude oil was little changed near a seven-day low after the Labor Department reported the productivity of U.S. workers fell in the second quarter, a sign the economy is struggling to recover.

Oil dropped 1.5 percent yesterday as the department said the U.S. lost momentum heading into the second year of the recovery from the recession. Crude pared its losses after Federal Reserve policy makers announced their first attempt to bolster growth since March 2009. Gasoline supplies rose last week, according to the American Petroleum Institute.

“Sentiment in the U.S. is somewhat mixed,” said Mike Sander, an investment adviser at Sander Capital Advisors in Seattle. “I still think we’re in dire shape. For now, it looks like the markets might hold.”

Crude oil for September delivery traded at $80.37 a barrel, up 12 cents, in electronic trading on the New York Mercantile Exchange at 9:18 Sydney time. Yesterday, the contract fell $1.23 to $80.25, the lowest price since July 30. Futures have climbed 16 percent in the past year.

The Labor Department’s measure of employee output per hour decreased at a 0.9 percent annual rate, the first drop since the end of 2008. The median forecast of economists surveyed by Bloomberg News projected a 0.1 percent gain.

The Fed decided to maintain its holdings of securities to prevent money from being drained out of the financial system and to keep the slowing U.S. economy from relapsing into recession. The central bank said it will reinvest principal payments on its mortgage holdings into long-term Treasury securities.

Price Forecast

The Energy Department increased its crude-oil price forecast for 2010 to an average $79.13 a barrel from $78.69 in July, according to its monthly Short-Term Energy Outlook, released yesterday. The department raised its estimate for global oil consumption this year to 85.91 million barrels a day from 85.82 million last month.

A weather system in the southeastern Gulf of Mexico has a 70 percent chance of becoming a tropical storm in the next 48 hours, according to a U.S. National Hurricane Center forecast at 2 p.m. Miami time.

U.S. crude oil supplies declined 2.8 million barrels last week, the American Petroleum Institute said. An Energy Department report today may show that inventories dropped by 2 million barrels, according to a Bloomberg News survey.

Gasoline stockpiles increased 729,000 barrels last week, the Petroleum Institute said. The Energy Department report may show inventories rose 250,000 barrels from 223 million, the Bloomberg News survey shows.

The Petroleum Institute collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Brent crude oil for September settlement fell $1.39, or 1.7 percent, to $79.60 a barrel on the London-based ICE Futures Europe Exchange yesterday.