Oil falls as unease about recovery spreads
Market sandwiched between slow recovery, growth hopes.
September 24, 2010 9:20 by Reuters
Oil fell on Friday as investor unease about the economic recovery spread across markets after lacklustre U.S. employment and housing data, sending equities lower and risk-haven currencies higher.
U.S. crude for November fell 26 cents to $74.92 a barrel at 0255 GMT. Still, prices were heading for a weekly gain of more than 1.6 percent, without straddling out of the $70-$80 range in more than six weeks. ICE Brent crude slid 28 cents to $77.83.
“We are essentially trapped in a range between $70 and $80,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.
While expectations the U.S. will inject more money into the economy make a good case for buying commodities, “it’s probably better to take the money off the table and wait to see if we are going to get out of this mess or not,” Nunan said.
The recovery from the U.S. economy’s longest recession since the 1930s fizzled in the second quarter and growth remains sluggish with unemployment stubbornly high, dampening expectations for a recovery in oil demand.
U.S. initial claims for state unemployment benefits increased 12,000 to 465,000 last week, the Labor Department said on Thursday, breaking two straight weeks of declines. Financial markets had forecast claims steady at 450,000.
Growth rates in the euro zone’s services and manufacturing sectors slowed more than forecast this month as firms hired fewer new workers, surveys showed, offering fresh signs the region’s economic recovery is losing momentum.
“Growth has slowed so much that it almost feels as a recession now compared to the quick recovery we had,” Nunan said. “There are still so many problems in the horizon that the feeling is of a double dip.”
Investors will be looking out for further clues on the economy’s direction from U.S. new home sales for August, due out later on Friday.
Sales of existing U.S. homes increased 7.6 percent to an annual rate of 4.13 million units, a report showed on Thursday, a touch above market expectations. Sales had plummeted 27 percent in July to the lowest level since 1997 after a tax credit for homebuyers expired. While they rose last month, the pace was still the second lowest in 13 years.
U.S. oil inventories at the key Cushing, Oklahoma, crude oil hub rose 198,440 barrels to 37.855 million barrels in the week to Sept. 21, Genscape data showed Thursday, following the restart of Enbridge Inc’s oil pipeline 6A.
The energy industry data provider estimated that Cushing crude tanks were filled to 73 percent of shell capacity as of Tuesday, up one percent from the previous week.
At a national level, total U.S. petroleum stockpiles last week reached their highest since weekly records began in 1990.
“If the inventory situation wasn’t so bad, you might have more people going into oil, but the U.S. situation is terrible,” Nunan said.
In other markets, Asian stocks fell back from recent five-month highs on Friday, hit by profit-taking fed by renewed worries over the global recovery, while the yen clung close to its highest since Japan’s currency intervention last week.
Gold rose to near $1,300 an ounce on Thursday, ending higher for a fourth straight day, while the euro retreated from a five-month high against the dollar, hobbled by worries about Ireland’s economy and its troubled banking sector.
The dollar strengthened against a basket of currencies on Friday, after hitting its lowest against the Japanese yen since last week’s intervention.
Tropical Storm Matthew formed over the western Caribbean on Thursday and was expected to hit Central America as early as Friday, the U.S. National Hurricane Center said.
Models of the storm, which could become a hurricane this weekend, suggest it might reach the Gulf of Mexico, where most of Mexico’s oil wells are located. Forecasts also show that the storm could turn north along the eastern edge of the Yucatan Peninsula and into the central Gulf of Mexico.
(Editing by Manash Goswami)