Crude oil fell to the lowest close in more than five weeks after a report showed that the U.S. economy grew at a slower pace than previously estimated and on forecasts that supplies gained.

Oil retreated after the Commerce Department said that the economy
expanded at a 2.8 percent annual rate in the third quarter, down from a
prior estimate of 3.5 percent. The U.S. Energy Department will probably
report tomorrow that crude-oil supplies climbed by 1.5 million barrels
in the week ended Nov. 20, according to a Bloomberg News survey.

“As long as there are tepid headlines about the economy, oil is going
to be under pressure,” said Michael Fitzpatrick, vice president of
energy with MF Global in New York. “We seem to be attracted to the
lower end of the recent range and will probably test it before long.”

Crude oil for January delivery declined $1.54, or 2 percent, to $76.02
a barrel on the New York Mercantile Exchange, the lowest settlement
since Oct. 14. Prices have gained 70 percent this year. Futures have
traded between $74.79 and $82 since Oct 15.

Prices were down from the settlement after the American Petroleum
Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles
increased 3.35 million barrels to 336.4 million. January oil slipped
$1.67, or 2.2 percent, to $75.89 a barrel in electronic trading at 4:31
p.m.

Transactions may be lighter than normal through the end of the week
because of this week’s U.S. Thanksgiving holiday. There will be no
floor trading on Nov. 26 and the market will close early on Nov. 27.

Increasing Volatility

“I’m not getting excited about anything I see this week as far as price
action is concerned,” said Stephen Schork, president of consultant
Schork Group Inc. in Villanova, Pennsylvania. “Volume and liquidity are
down, so volatility is going to be through the roof.”

The Standard & Poor’s 500 Index declined 0.1 percent to 1,105.26
and the Dow Jones Industrial Average slipped 0.2 percent to 10,431.07
at 2:30 when Nymex floor trading ended.

“The GDP was a little disappointing and that put pressure on stocks,”
said Phil Flynn, vice president of research at PFGBest in Chicago. “The
fundamentals of this market are terrible and it’s been held higher by
what’s happening elsewhere. The move is bigger than what we would
normally see because the volume is so light.”

Analysts were split over whether U.S. distillate supplies, a category
that includes heating oil and diesel, rose or fell last week.
Stockpiles were probably unchanged at 167.4 million barrels, according
to the median of 17 responses in the survey. Gasoline inventories
probably increased 300,000 barrels from 209.1 million.

Supply Glut

“At least until the end of the year we see $80 as the top of the
range,” said Tobias Merath, a commodity analyst at Credit Suisse Group
in Zurich. “What’s limiting the potential in the short term is the
supply glut in the distillate market.”

Refineries operated at 79.7 percent of capacity, up 0.3 percentage
point from the previous week, according to the survey of analysts.
Plants in the week ended Nov. 13 operated at the lowest level since
September 2008, when hurricanes Gustav and Ike struck the Gulf of
Mexico.

“Oil should be at $50,” Schork said. “Look at Valero and Sunoco. They
can’t make any money selling fuel, so they are shutting plants. If
refineries are being shut, there’s no need for additional crude.”

Valero Energy Corp., the largest U.S. refiner, said on Nov. 20 that it
will close its Delaware City, Delaware, plant because of mounting
losses after the recession eroded demand for gasoline and diesel.
Philadelphia-based Sunoco Inc. idled its Eagle Point refinery in
Westville, New Jersey, this month.

Total U.S. daily fuel demand averaged 18.6 million barrels in the four
weeks ended Nov. 13, down 4.1 percent from a year earlier, an Energy
Department report showed on Nov. 18.

Sluggish Recovery

“The floor has been set by the weaker dollar, higher inflation theme,
while the ceiling has been set by weak refining margins, and a global
recovery that is expected to be sluggish,” said Mike Wittner, head of
oil market research at Societe Generale SA in London.

Brent crude oil for January delivery on the London-based ICE Futures
Europe exchange declined $1, or 1.3 percent, to end the session at
$76.46 a barrel.

Oil stockpiles worldwide are too high and nations must be careful about
the amount of supply in the market, Nigerian Petroleum Minister Rilwanu
Lukman said. The African country was OPEC’s eighth-biggest producer in
October, according to a Bloomberg News survey.

‘Delicacy’ Required

The oil market requires “delicacy,” Lukman said at a news conference today in Washington.

The Organization of Petroleum Exporting Countries meets on Dec. 22 in
Luanda, Angola, to discuss production targets. The group agreed at its
Sept. 9 meeting in Vienna to maintain production quotas at 24.845
million barrels a day.

Oil volume in electronic trading on the Nymex was 638,641 contracts as
of 2:58 p.m. in New York. Volume totaled 616,725 contracts yesterday,
11 percent higher than the average over the past three months. Open
interest was 1.16 million contracts. The exchange has a
one-business-day delay in reporting open interest and full volume data.

Source: Bloomberg

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