Oil Falls to Lowest Since February Before U.S. Jobs Data

Oil fell below $100 a barrel for the first time since February as U.S. employers added fewer workers than forecast, stoking concern that demand won’t be enough to cap inventories at their highest level in 21 years.
Futures declined as much as 4.9 percent after Labor Department figures showed payrolls climbed 115,000, the smallest gain in six months. The median estimate of 85 economists surveyed by Bloomberg called for a 160,000 advance. Elections in France, Greece, Italy and Germany this weekend may determine how the region’s governments respond to Europe’s financial crisis.
“The oil market remains focused on the economy,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. “The economic news from Europe and the U.S. has been a little disappointing. It looks like the U.S. is growing a little slower than we expected.”
Crude oil for June delivery dropped $4.57, or 4.5 percent, to $97.97 a barrel at 1:51 p.m. on the New York Mercantile Exchange. The contract touched $97.51, the lowest level since Feb. 10. Prices are down 6.6 percent this week, heading for the biggest weekly decline since September.
Brent oil for June settlement fell $3.13, or 2.7 percent, to $112.95 a barrel on the London-based ICE Futures Europe exchange. The contract reached $111.76, the lowest level since Feb. 2. The European benchmark contract’s premium to New York futures widened to $14.98 from $13.54 yesterday.
The jobless rate fell to a three-year low of 8.1 percent, and earnings stagnated. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6 percent, the lowest level since December 1981, from 63.8 percent.

Labor Participation

“The only reason that the jobless rate went down was that the labor participation rate fell to the lowest level since 1981,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “This is going to weigh on the crude market and especially on equities.”
Euro-region services and manufacturing output contracted more than initially estimated in April. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 46.7 from 49.1 in March, London-based Markit Economics said today. That’s below an estimate of 47.4 published on April 23.
French voters go to the polls May 6 in a final runoff between President Nicolas Sarkozy and Socialist challenger Francois Hollande and Greeks will pick a new government in a national election the same day. There will be local elections in Germany and Italy.

‘Show Cracks’

“The European situation continues to be a drag on the market,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “There are elections this weekend that could have a major impact on policy. The U.S., which had been holding up pretty well, is starting to show cracks.”
The Standard & Poor’s 500 Index declined 1.4 percent. The Standard & Poor’s GSCI Index of 24 commodities was down 2.5 percent. The drop was led by crude.
Oil in New York climbed to a five-week intraday high of $106.43 on May 1 after a report showed that U.S. manufacturing increased at the fastest pace in 10 months.
“Volatility has returned to the market,” Greely said. “We’re going to remain in a choppy range through the second quarter and then move higher in the second half of the year as the U.S. and Chinese economies improve.”
The fall in prices accelerated after breaking through technical support along its 100-day moving average, data compiled by Bloomberg showed. The indicator stands at $102.36 a barrel today. Buy and sell orders tend to be clustered near chart-support levels.

Oil Supply

U.S. crude stockpiles increased 2.84 million barrels to 375.9 million in the seven days ended April 27, the most since September 1990, according to an Energy Department report May 2. Domestic output gained 8,000 barrels a day to 6.12 million, the highest level since November 1999, the report showed.
Gasoline consumption fell 0.3 percent to an average 8.66 million barrels a day in the four weeks ended April 27, leaving demand 4.7 percent lower than a year earlier, according to the department.
“We’re now focused on weak demand and high inventory levels,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Sobriety has returned to the market with Iran tension easing. Oil above $100 is not sustainable with the economy in this condition.”
Oil in New York has fallen 12 percent from a March 1 intraday peak of $110.55 a barrel as tensions have eased between Iran and Western nations over the country’s nuclear program.

‘Psychological Number’

“This is the biggest psychological number on the board for both investors and consumers,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Falling below $100 will have a major impact on consumer confidence as it signals some relief from high prices.”
Gasoline for June delivery dropped 8.56 cents, or 2.8 percent, to $2.9644 a gallon in New York. The contract touched $2.9407, the lowest level since Feb. 8.
The national average retail price of unleaded regular gasoline in the U.S. fell 0.1 cent to $3.802 a gallon yesterday, according to a daily survey by AAA, the country’s largest motoring organization. That’s down from $3.936 on April 4.


Asad Khan
Financial Analyst  (CFB) Trading Team