Crude Trades Near One-Week Low Because of Outlook for Weaker Fuel Demand
By Grant Smith - Oct 18, 2010 5:47 AM CT


Oil traded near its lowest level in more than a week in New York on a stronger dollar and concern that U.S. fuel consumption is rebounding too slowly.

Crude fell as the Dollar Index climbed for a second day, damping the appeal of commodities as an alternative investment. Work began on 3 percent fewer houses in September in the U.S., the world’s largest oil user, than a month earlier, economists estimated before a Commerce Department report tomorrow.

“Sentiment is turning more cautious today, not only in oil, but across most of the commodities complex as the dollar stages a recovery,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “Energy demand hasn’t returned sufficiently to ensure prices stay above $80.”

Crude for November delivery dropped as much as 90 cents, or 1.1 percent, to $80.35 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest since Oct. 8. It was at $81.15 at 11:35 a.m. London time. Brent crude for December settlement declined as much as 92 cents, or 1.1 percent, to $81.53 a barrel on the ICE Futures Europe exchange in London.

On Oct. 15, the New York contract lost $1.44, or 1.7 percent, to $81.25, the lowest settlement since Sept. 30. Oil is in the longest pullback since a four-day losing streak through Sept. 17. Futures fell 1.7 percent last week, the first decline in four weeks.

Fed Dilemma

Bank of America Merrill Lynch said that central bank stimulus may push prices to $100 a barrel next year as the dollar slides further. This poses a dilemma for the U.S. Federal Reserve because high oil prices will create a tax burden on the average American, Commodity Strategist Francisco Blanch said in a research report.

The Dollar Index, used by IntercontinentalExchange Inc. to track the dollar against currencies including the euro, yen and Swiss franc, added as much as 0.3 percent to 77.303. The U.S. currency also climbed 0.5 percent to $1.3907 against the 16- nation euro.

“Oil continues to be heavily impacted by U.S. dollar movements,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “The data out of the U.S. is pretty choppy at the moment. Some are more positive than others, some are weaker than you expect.”

U.S. retail sales in September rose 0.6 percent following a 0.7 percent gain in August that was larger than previously estimated, the Commerce Department said Oct. 15. Purchases were projected to increase 0.4 percent, according to the median estimate from 80 economists surveyed by Bloomberg News. Work began on 580,000 houses at an annual rate, down 3 percent from August, based on the median of 56 estimates in a separate poll.

Fuel Demand Rises

U.S. consumption of refined products rose 1.8 percent in September from the year before, signaling demand is recovering as the economy rebounds, the American Petroleum Institute, a Washington-based industry group, said in an Oct. 15 report. Fuel deliveries, a measure of demand, averaged 18.9 million barrels a day, from 18.6 million in September 2009.

Net-long positions in oil futures and options held by “managed money,” including hedge funds, commodity pools and trading advisers, rose 10,198, or 6.1 percent, to 178,738 contracts, according to the U.S. Commodity Futures Trading Commission.

French truckers blocked highways and officials said they’d use police to prevent strikers from cutting fuel supplies as the standoff hardened over President Nicolas Sarkozy’s plans to raise the retirement age to 62.

The government said it won’t give in to demands that it suspend parliamentary debate on the change and keep the minimum retirement age at 60. Sarkozy’s ministers sought to guarantee fuel, saying police would be deployed to ensure access to storage sites as refinery strikes entered a second week.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net


http://www.bloomberg.com/news/2010-1...mmodities.html