Crude Oil Snaps Three Days of Gains on Equities, Lower Demand

May 21 (Bloomberg) -- Crude oil fell in New York, snapping three days of gains, after U.S. stocks retreated as the Federal Reserve predicted a deeper recession and a government report showed a drop in fuel demand.

Oil declined after minutes of the April 28-29 Federal Open Market Committee meeting showed yesterday that some members judged last month that the central bank may need to boost its purchases of assets to secure a stronger economic recovery. Total U.S. daily fuel demand in the four weeks ended May 15 fell 7.6 percent from a year earlier, an Energy Department report showed yesterday.

“The market seemed to think that the minutes of the FOMC meeting were somewhat less optimistic than they had hoped, it did seem to drag on the equities,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “I just don’t think the fundamentals of the oil market can support prices up around the early $60s given that we really haven’t seen any improvement in demand.”

Crude oil for July delivery dropped as much as 69 cents, or 1.1 percent, to $61.35, and was at $61.41 on the New York Mercantile Exchange at 11:14 a.m. in Singapore. Yesterday, oil rose $1.94, or 3.2 percent, to settle at $62.04 a barrel, the highest settlement since Nov. 10.

The Standard & Poor’s 500 Index slipped 0.5 percent to 903.47 and The Dow Jones Industrial Average lost 0.6 percent to 8,422.04.

Refinery Rates

Crude oil may be poised to fall further, based on technical indicators used by traders. The 30-day relative strength index has climbed to 60.58 today. The last time it was near this level, at 60.90 on July 14, the oil price started a 22 percent drop from $145.18 a barrel to $112.87 on Aug. 18.

U.S. refineries operated at 81.8 percent of capacity, down 1.9 percentage points from the prior week, the Energy Department report showed.

“It was a pretty significant drop,” Hassall said. “We are operating at the moment almost 10 percent below the five- year average rate, which is really an indication of the demand environment.”

Disruptions at U.S. refineries included the shutdown of the catalytic cracker after a fire yesterday at Flint Hills Resources LLC’s Corpus Christi, Texas, plant. A catalytic cracker makes products such as gasoline and diesel. Sunoco Inc. shut a gasoline-making unit at its Marcus Hook, Pennsylvania, refinery after a fire on May 17.

Fighting between Nigerian troops and the militant group Movement for the Emancipation of the Niger Delta erupted on May 13. Nigeria produces low-sulfur oil, prized by U.S. refiners because of the proportion of high-value gasoline it yields.

Fizzling Rally

“So far the trend is up,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “I would still be cautious for what is to come after Memorial Day and the OPEC meeting. The rally could fizzle and the markets could calm for the summer and stay flat to down.”

The Organization of Petroleum Exporting Countries is unlikely to reduce output further when it meets on May 28, a member of Kuwait’s Supreme Petroleum Council was cited as saying by state-owned KUNA news agency yesterday. OPEC is still implementing a series of supply cuts announced last year.

The 11 OPEC members with quotas, all except Iraq, pumped 25.812 million barrels a day last month, a report from the group on May 13 said, citing secondary sources, which include estimates from analysts and news organizations. That’s up 225,000 barrels a day from March.

Gasoline for June delivery declined 1.65 cents to $1.7930 a gallon in New York at 10:39 a.m. Singapore time. Futures touched $1.8724 yesterday, the highest intraday price since Oct. 15.

Inventory decline

Crude stockpiles dropped 2.11 million barrels to 368.5 million in the week ended May 15, the Energy Department said. A 400,000-barrel decrease was forecast, according to a Bloomberg News survey.

Gasoline supplies plunged 4.34 million barrels to 204 million. A 1.2 million-barrel drop was forecast, according to the median estimate of 15 analysts surveyed by Bloomberg News.

Energy and metals futures also gained after the dollar fell to the lowest level versus the euro in four months, bolstering demand for commodities as an alternative investment. The dollar traded at $1.3780 at 6:02 a.m. in Tokyo, after dropping 1.1 percent and touching $1.3830, the weakest level since Jan. 5.

Gold futures for June delivery rose $10.70, or 1.2 percent, to $937.40 an ounce yesterday on the Comex division of Nymex, the highest settlement since March 26. The Reuters/Jefferies CRB Index of 19 commodities increased 3.39 points, or 1.4 percent, to 244.84, the highest since Nov. 26.

Brent crude for July settlement fell as much as 64 cents, or 1.1 percent, to $59.95 a barrel on London’s ICE Futures Europe exchange.