Oil Declines as U.S. Strike Seen Cutting Refinery Demand
(Bloomberg) -- Oil fell amid speculation that the biggest strike at U.S. refineries since 1980 will curtail crude processing in the world’s leading consumer nation and worsen a global supply glut.
Futures dropped as much as 3.3 percent in New York. The United Steelworkers union, which represents employees at more than 200 U.S. refineries, terminals, pipelines and chemical plants, stopped work on Sunday at nine sites after failing to agree on a labor contract. China’s Purchasing Managers’ Index slid to 49.8 last month from 50.1 in December, below a reading of 50 that separates expansion from contraction.
Rising U.S. supply has contributed to a global surplus that drove oil prices almost 50 percent lower last year. The Organization of Petroleum Exporting Countries, which has resisted calls to cut output, boosted production in January as Iraq pumped at a record pace, according to a Bloomberg survey of oil companies, producers and analysts.
“If the strike escalates, that would be detrimental to the oil price,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone. “It will put high U.S. production out on the market and there’s nowhere for it to go. Also, the PMI number would indicate some slowing.”
West Texas Intermediate for March delivery lost as much as $1.57 to $46.67 a barrel in electronic trading on the New York Mercantile Exchange and was at $46.94 at 12:10 p.m. Singapore time. The contract gained 8.3 percent on Jan. 30, the most since June 2012. Total volume was about 69 percent above the 100-day average. Prices have decreased 12 percent this year.
Refinery Strike
Brent for March settlement declined as much as $1.58, or 3 percent, to $51.41 a barrel on the London-based ICE Futures Europe exchange. It climbed $3.86 to $52.99 on Jan. 30. The European benchmark crude traded at a premium of $4.64 to WTI.
The steelworkers’ union that went on strike said in a statement that it “had no choice.” It rejected five contract offers made by Royal Dutch Shell Plc on behalf of oil companies including Exxon Mobil Corp. and Chevron Corp. since talks began on Jan. 21.
The union hasn’t called a national stoppage since 1980, when a halt lasted three months. The refineries on strike can produce 1.82 million barrels a day of fuel, about 10 percent of total U.S. capacity, data compiled by Bloomberg show.
“If the strike does get to the stage of really affecting production levels, the likely impact will be smaller product inventories,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone.
Gasoline Profits
Gasoline in New York was at a premium of $14.219 a barrel to crude at Cushing, Oklahoma, the delivery point for WTI contracts. That’s the highest profit from making the motor fuel since September.
“There will be a knee-jerk reaction in gasoline and diesel prices because we don’t know how long this is going to be or how extended it might be,” Carl Larry, a Houston-based director for oil and gas at Frost & Sullivan, said by phone on Sunday. “It’ll be bearish for crude, but we’ve already accounted for a lot of the fact that refineries are in maintenance.”
U.S. drillers idled 94 oil rigs last week, the most since Baker Hughes Inc. began collecting data in 1987. The number of active machines shrank to a three-year low, according to the Houston-based oilfield services company.
Chinese Economy
The Chinese government’s PMI released Feb. 1 was below the median projection of 50.2 in a Bloomberg News survey of 22 economists. A separate gauge Feb. 2 from HSBC and Markit Economics was at 49.7, also missing estimates.
The Asian nation, the world’s second-largest oil consumer, will account for about 11 percent of global demand this year, forecasts from the International Energy Agency in Paris show.
OPEC, which supplies about 40 percent of the world’s oil, pumped 30.91 million barrels a day in January, according to the Bloomberg survey. The 12-member group agreed at a Nov. 27 meeting to maintain its production target at 30 million. Iraqi output increased by 200,000 barrels a day to 3.9 million, the biggest gain after Saudi Arabia.
Money managers reduced their net-long positions on WTI for a second week through Jan. 27, raised short bets to the highest level since 2010, the U.S. Commodity Futures Trading Commission said in a report.
To contact the reporter on this story: Ben Sharples in Melbourne atbsharples@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan atpnarayanan9@bloomberg.net Yee Kai Pin, Aaron Clark
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