Oil Heads for First Weekly Decline in Four on U.S. Economy, Demand Concern

Oil headed for its first weekly decline in four as signs of weakening demand in the U.S. countered concern that Libyan supply cuts will spread through the Middle East.

Futures were little changed today and have dropped 1.6 percent this week after U.S. crude inventories increased more than projected and unemployment rose, bolstering concern the country’s economic recovery will slow. Saudi Arabian security forces yesterday broke up a rally a day before what anti- government demonstrators have called a “Day of Rage.”

“If we weren’t seeing this Middle Eastern conflict, the abundance of stocks in the U.S. would be having a significant damping effect on the price,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “We don’t see any sustained bounce-back in activity to above average growth rates for a long period of time in the U.S. It’s going to be a prolonged recovery.”

Crude for April delivery was at $102.68 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange at 11:19 a.m. Singapore time. Yesterday, the contract declined $1.68, or 1.6 percent, to settle at $102.70. Prices are up 25 percent from a year earlier.
Brent oil for April settlement was at $115.38 a barrel, down 5 cents, on the London-based ICE Futures Europe exchange. The contract is down 0.5 percent this week, heading for its first decline in seven weeks.

U.S. Economy

Brent’s smaller decline this week has widened the premium to West Texas oil traded in New York. The difference between the European grade and U.S. futures was $12.63 a barrel today compared with $11.55 on March 4.
Oil fell after the Labor Department said U.S. jobless claims increased by 26,000 to 397,000 last week from a three- year low. Economists forecast they would climb to 376,000, according to the median estimate in a Bloomberg survey.
An Energy Department report on March 9 showed crude stockpiles rose to the highest level since 2004 at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the U.S. benchmark grade. Inventories increased 1.69 million barrels to 40.3 million last week, the highest since the department began gathering data at the hub.
Total U.S. crude stockpiles rose 2.52 million barrels to 348.9 million, the Energy Department report showed. A 1 million- barrel increase was projected, according to the median of 15 analyst responses in a Bloomberg News survey.
Libyan rebels under fire fled from a key oil hub on the Mediterranean coast, as Muammar Qaddafi’s son said government forces are mounting a full-scale attack and Western countries will lose if they support the uprising.
Output Cut
The violence has cut output in Libya by as much as 1 million barrels a day, according to Shokri Ghanem, chairman of state-run Libya’s National Oil Corp. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, based on Bloomberg estimates.
Regional unrest, which has so far toppled the leaders of Tunisia and Egypt, has reached Saudi Arabia’s neighbors Yemen, Oman and Bahrain, the island-kingdom where a Sunni family rules the majority Shiite population.
Libya’s production losses led banks including Goldman Sachs Group Inc., Bank of America Merrill Lynch, Citigroup Inc. and Commerzbank AG to raise their forecasts for crude prices this year.
Goldman increased it Brent and WTI estimates for the second quarter of the year by $4.50 a barrel to $105 and $99 respectively. The bank said a decline in OPEC’s spare capacity reduced its ability to make up for further disruptions.
The Organization of Petroleum Exporting Countries may reduce crude exports for a fifth time in the four weeks through March 26, according to tanker-tracker Oil Movements. Loadings may drop to 23.56 million barrels a day in the period, down 1.3 percent from 23.88 million barrels a day in the four weeks to Feb. 26, the Halifax, England-based company said yesterday.