Oil Falls as U.S. Service Industries Contract, Inventories Gain

By Mark Shenk

Aug. 5 (Bloomberg) — Crude oil fell after a government report showed a bigger-than-projected supply increase and U.S. service industries contracted in July, signaling that demand will be slow to rebound in coming months.

Stockpiles gained 1.67 million barrels to 349.5 million last week, the Energy Department said. A 600,000-barrel gain was forecast, according to a Bloomberg News survey. Supplies rose at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored. The Institute for Supply Management’s index of non-manufacturing businesses fell more than projected.

“The crude oil builds, both nationwide and at Cushing, are weighing on the market,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “The ISM numbers earlier today also pushed prices lower.”

Crude oil for September delivery fell 27 cents, or 0.4 percent, to $71.15 a barrel at 12:53 p.m. on the New York Mercantile Exchange. Oil traded at $70.73 before the release of the inventory report at 10:30 a.m. in Washington.

“The big build in crude supplies is clearly having an impact, but until we decisively break below $70 and $69, it doesn’t mean a whole lot,” said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York. “The market really hasn’t focused on fundamentals since we reached the lows last winter.”

Crude oil supplies at Cushing rose 1.2 million barrels to 33.3 million in the week ended July 31, leaving stockpiles the highest since March.

Fuel Inventories

Gasoline inventories declined 218,000 barrels to 212.9 million last week, the report showed. An 800,000-barrel drop was forecast, according to the median of 16 responses by analysts in the Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 1.14 million barrels to 161.5 million. An increase of 1.23 million barrels was projected.

Gasoline for September delivery declined 3.03 cents, or 1.5 percent, to $2.0264 a gallon in New York. Heating oil for September delivery rose 2.98 cents, or 1.6 percent, to $1.9312.

The Tempe, Arizona-based ISM’s index of service industries, which makes up almost 90 percent of the economy, fell to 46.4 from 47 in June. The index was projected to rise to 48, according to the median of 77 responses in a Bloomberg News survey.

“The economy is only bottoming out and the recovery to pre-recession activity levels will take time,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas SA in London. “With more inventory builds, prices could stand to correct from recent gains.”

Brent Oil

Brent crude oil for September settlement rose 26 cents, or 0.4 percent, to $74.54 a barrel on London’s ICE Futures Europe Exchange.

The U.K.’s Financial Services Authority will hold discussions with oil traders and producers in London today on the impact of speculation in the energy market. The meeting follows a U.S. Commodity Futures Trading Commission hearing on whether to put limits on oil trades, something the FSA doesn’t do.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: August 5, 2009 13:28 EDT

taken from bloomberg.com 8-5-09