Oil Falls on Concern Unemployment Rate to Climb to 26-Year High
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By Mark Shenk and Paul Burkhardt
Nov. 5 (Bloomberg) -- Crude oil fell on speculation that a government report tomorrow will show that the U.S. unemployment rate climbed last month, depressing demand for energy products.
Oil dipped 1 percent on concern that the Labor Department will say the U.S. unemployment rate rose to a 26-year high in October. Prices climbed yesterday after the Energy Department said U.S. stockpiles of crude oil, gasoline and distillate fuel, a category that includes heating oil and diesel, fell last week.
“The employment figure tomorrow will be the granddaddy of them all,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, consultant. “There’s just an unwillingness to get in until then.”
Crude oil for December delivery fell 78 cents to settle at $79.62 a barrel on the New York Mercantile Exchange. Futures have gained 79 percent this year.
Futures climbed to a one-year high of $82 a barrel on Oct. 21. Prices dropped to $76.55 on Nov. 3, the lowest since Oct. 15. The recent low is considered by technical traders to be a support level, and breaking below it would be a signal that price declines will accelerate.
“The market looks like it’s running out of momentum once we get above $80,” said Mike Fitzpatrick, vice president of energy with MF Global in New York. “We’ll see selling in the market once you get past that point. Oil will meet resistance at $76.50 and $82 a barrel.”
Unemployment Report
The government report tomorrow is anticipated to overshadow other economic data released earlier this week as an indicator of fuel demand, according to Carl Larry, president of Oil Outlooks & Opinions LLC, a Houston-based energy adviser.
“The report is not just going to be a rate or a number, it’s going to be the number of jobs created and the number lost,” said Larry. “The labor, the retail, those are the people who drive.”
Total fuel demand over the four weeks ended Oct. 30 was 4.5 percent lower than the same period a year earlier, yesterday’s Energy Department report showed. Refineries operated at 80.6 percent of capacity, down 1.2 percentage points from the previous week and the lowest rate since the week ended April 10, the department said.
“Refiners are looking at bearish demand numbers and see no need to increase output,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “There is no reason for them to take delivery of more crude right now either.”
Gasoline for December delivery fell 2.5 cents, or 1.2 percent, to settle at $1.9877 a gallon on the New York Mercantile Exchange.
Oil Imports
Imports of crude oil fell 764,000 barrels, or 8.6 percent, to 8.13 million barrels a day, the lowest level since Aug. 14, the Energy Department said.
“We had what was an ostensibly bullish report across the board yesterday,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “There were declines in every category, refinery utilization dropped and imports fell. The important number that was ignored at first glance was demand, and it was ghastly.”
An additional 175,000 jobs were probably lost in October and unemployment probably rose to a 26-year high of 9.9 percent, economists forecast before tomorrow’s Labor Department payrolls report.
“The report could certainly have an effect on the market,” said Stephen Schork, president of consultant Schork Group Inc. of Villanova, Pennsylvania. “The White House tends to be hush on the forecast, which would not bode well.”
Jobless Claims
Prices rose to the session’s highs after a separate report today showed that jobless claims dropped last week.
“It will take a lot more than a moderately positive piece of data to keep prices moving higher,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “This rally has run out of steam.”
Equities rallied on the reports of jobless claims and worker productivity beating forecasts. The Standard & Poor’s 500 Index moved higher for a fourth day, gaining as much as 1.8 percent.
The dollar weakened, trading at $1.4872 against the euro, from $1.4861 yesterday.
“Stocks are up and the dollar is down but it isn’t enough to get the market moving,” said Phil Flynn, vice president of research at PFGBest in Chicago. “There’s a lack of passion in the market today,”
Brent crude oil for December settlement declined 90 cents, or 1.1 percent, to end the session at $77.99 a barrel on the London-based ICE Futures Europe exchange.
Oil volume in electronic trading on the Nymex was 361,487 contracts as of 3:07 p.m. in New York. Volume totaled 602,989 contracts yesterday, 6.3 percent higher than the average over the past three months. Open interest was 1.24 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Paul Burkhardt in New York at pburkhardt@bloomberg.net
Last Updated: November 5, 2009 15:40 EST
