Oil Extends Declines as U.S. Refining Rates, Fuel Demand Drop

Jan. 22 (Bloomberg) -- Crude oil fell below $76 a barrel and is poised for a second weekly decline after a report showed U.S. refineries slashed operating rates as fuel demand dropped.

Oil dropped for a third day after the U.S. Energy Department said that plants ran at 78.4 percent of capacity last week, the lowest rate outside the Atlantic hurricane season since at least 1989. Gasoline stockpiles surged to the highest level since March 2008. Fuel consumption in the past four weeks was 1.8 percent lower than a year earlier.

“The market would be pretty concerned with refinery rates,” Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, said by phone. “It’s flagging weaker demand and also that supplies are ample,” he said.

Crude oil for March delivery dropped as much as 46 cents, or 0.6 percent, to $75.62 a barrel in electronic trading on the New York Mercantile Exchange. It was at $75.73 at 11:27 a.m. Sydney time. Yesterday, the contract fell 2.1 percent to $76.08, the lowest settlement since Dec. 22.

Oil has dropped 2.9 percent this week as falling equity markets dented investor confidence and the rising dollar reduced the investment appeal of commodities priced in the currency.

The dollar yesterday reached its highest against the euro since July 30 on a report that the European Union was preparing a loan for Greece. The report was denied by Finance Minister George Papaconstantinou.

The U.S. currency was at $1.4091 per euro at 11:15 a.m. Sydney time, from $1.4085 yesterday.

U.S. Refinery Rates

Analysts had expected U.S. refining rates to decline to about 80.8 percent from 81.3 percent a week earlier, according to a Bloomberg News survey.

Gasoline inventories rose 3.95 million barrels to 227.4 million in the week ended Jan. 15, the Energy Department report showed. Stockpiles were forecast to climb by 1.75 million barrels, according to the median of 18 analyst estimates.

Inventories of crude oil fell 471,000 barrels to 330.6 million, the department said. Supplies were forecast to rise 2.45 million barrels.

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 3.26 million barrels to 157.1 million. Analysts were split over whether stockpiles increased or declined over the period.

Brent crude oil for March settlement declined $1.74, or 2.3 percent, to $74.58 a barrel on the London-based ICE Futures Europe exchange yesterday.

Yen Strengthens to 9-Month High Against Euro on Obama’s Plan

Jan. 22 (Bloomberg) -- The yen gained to a nine-month high against the euro amid concerns that President Barack Obama’s proposal to restrict risk trading at financial institutions will discourage demand for higher-yielding assets.

The Japanese currency was set for a second straight weekly gain versus the euro and a three-week advance against the dollar on speculation Asian stocks will join a global equity slump. Canada’s dollar touched a three-week low as oil slid and investors speculated China will curb its economic expansion.

“Trading restrictions at banks will enhance risk aversion,” said Soichiro Mori, a Tokyo-based strategist at FXOnline Japan Co., a margin-trading company. “This will trigger a flight to safety assets” such as the yen.

The yen advanced to 126.89 per euro at 8:41 a.m. in Tokyo from 127.37 in New York yesterday. The Japanese currency reached 126.56, the strongest level since April 28. It gained to 90.08 per dollar from 90.43 yesterday after reaching 89.87, the highest level since Dec. 18. The U.S. currency traded at $1.4085 versus the euro from $1.4084 yesterday, when it rose to $1.4029, the most since July 30.

Canada’s currency, the loonie, touched C$1.0525, the weakest this year, before trading at C$1.0518. Crude oil slid 2.3 percent yesterday and the MSCI World Index fell 1.5 percent.

The loonie tends to track commodities and equities. The 30-day correlation between the MSCI World Index and the Canadian currency is 0.75. A reading of one would indicate they move in lockstep.

White House Proposals

The dollar slid yesterday against the yen for the first time in four days as Obama called for limiting the size and trading activities of financial institutions as a way to reduce risk taking and prevent another financial crisis.

The proposals will be part of an overhaul of regulations and would prohibit banks from running proprietary trading operations or investing in hedge funds and private equity funds.

The Standard & Poor’s 500 Index lost 1.9 percent yesterday.

The gross domestic product of China, the world’s largest consumer of many of the raw materials, grew 10.7 percent last quarter from the year before, the nation’s statistics bureau said yesterday. That was faster than the 10.5 percent median forecast of economists in a Bloomberg News survey, sparking speculation that China will step up monetary tightening to curve inflationary pressure.