West Texas Intermediate crude capped
the biggest weekly drop in six months as U.S. employers hired
less than half the number of workers forecast in March, raising
concern that economic growth won’t be strong enough to support
oil demand.
Prices tumbled for the fourth time in five days after the
Labor Department said payrolls climbed by 88,000, the smallest
gain in nine months. Economists surveyed by Bloomberg had
expected an advance of 190,000. U.S. inventories increased to a
22-year high in an April 3 Energy Information Administration
report as oil production stayed near the most since 1992.
“People are surprised by the jobs numbers,” said Michael Lynch, president of Strategic Energy & Economic Research in
Winchester, Massachusetts. “The market had been inflated for a
while. Whether this represents the beginning of a bear run is
not clear, but it’s clearly the ending of the bull run.”
WTI oil for May delivery dropped 56 cents, or 0.6 percent,
to $92.70 a barrel on the New York Mercantile Exchange, the
lowest settlement since March 21. The 4.7 percent weekly loss
was the biggest since Sept. 21. Trading was 25 percent above the
100-day average for the time of day at 2:43 p.m.
Brent crude for May settlement declined $2.22, or 2.1
percent, to end the session at $104.12 a barrel on the London-
based ICE Futures Europe exchange, the lowest closing price
since July 24. Trading was 79 percent above the 100-day average.
Brent Contango
Front-month Brent futures settled below the second-month
contract for the first time in nine months, a pricing structure
known as a contango which may signal declining near-term demand
or rising supply. June Brent ended the session at $104.15.
Brent’s premium to WTI narrowed to $11.42, the least since
June. Brent has slumped 6.3 percent this year, while WTI is up 1
percent.
The selloff in Brent is “likely overdone,” Goldman Sachs
Group Inc. analysts including Stefan Wieler said in a report
dated yesterday. The bank maintained its Brent price forecast of
$110 a barrel for this quarter. The European benchmark averaged
$112.64 in the first quarter.
The unemployment rate, derived from a separate survey of
households, fell last month to 7.6 percent from 7.7 percent in
February, the Labor Department said. The figure, the lowest
since December 2008, reflected a 496,000 decline in the size of
the labor force. The labor force participation rate fell to 63.3
percent, the lowest since May 1979.
Unemployment Rate
“This is a disappointing jobs report and oil should trade
lower,” said Jason Schenker, president of Prestige Economics
LLC, an Austin, Texas-based energy consultant.
This week’s loss in WTI wiped out last week’s gain of 3.8
percent, which came after a Commerce Department report showed
that U.S. gross domestic product rose at a 0.4 percent annual
rate in the fourth quarter, up from prior estimate of 0.1
percent.
U.S. crude stockpiles expanded by 2.71 million barrels in
the week ended March 29 to 388.6 million, the most since 1990,
the Energy Information Administration, the Energy Department’s
statistical arm, said on April 3. Production was 7.15 million
barrels a day.
Crude will probably fall next week on signs of slower
economic growth, a Bloomberg survey showed. Fourteen of 26
analysts and traders, or 54 percent, forecast WTI will drop
through April 12. Eight respondents, or 31 percent, predicted a
gain and four said there will be little change.
Iran Talk
Oil also declined as euro-area retail sales fell in
February. Sales in the 17-nation currency bloc decreased 0.3
percent from January, when they rose a revised 0.9 percent, the
European Union’s statistics office in Luxembourg said today.
The U.S. and the European Union accounted for 36 percent of
world oil demand in 2011, according to BP Plc (BP/)’s Statistical
Review of World Energy.
International negotiators from the U.S., Britain, France,
Germany, Russia and China are holding nuclear-program talks with
Iran today in Almaty, Kazakhstan. Early last year, tensions with
Iran contributed to higher oil prices and a European Union
embargo that started in July has curbed the country’s ability to
export crude.
Oil reduced losses as the dollar weakened against the euro
on speculation that the Federal Reserve will continue to support
economic growth with its bond-buying stimulus program, known as
quantitative easing.
“The Fed’s QE program is going to continue longer,”
Schenker said.
Fed Vice Chairman Janet Yellen threw her support behind a
proposal to vary the pace of the central bank’s bond buying
based on changes in prospects for the world’s largest economy
during a speech yesterday.
Dollar Declines
The dollar fell to $1.304 per euro, the lowest level since
March 25. A weaker dollar increases oil’s appeal as an
investment alternative.
Implied volatility for at-the-money WTI crude options
expiring in May was 19.6 percent at 3:40 p.m., down from 20.2
percent yesterday.
Electronic trading volume on the Nymex was 574,800
contracts as of 3:42 p.m. It totaled 782,882 contracts
yesterday, 36 percent above the three-month average. Open
interest was a record 1.76 million contracts.
