Oil eases towards $71, down on weaker equities

Oil eases towards $71, down on weaker equities

Singapore: Oil took a cue from falling equities and eased towards $71 on Thursday, paring gains of nearly 1% in the previous session that came after US government data showed a surprise decline in distillate supplies.

As world shares fell after data showed the US services sector contracted at a faster clip than expected, traders pondered whether the pace of recovery from recession may be slower than hoped.

“The market is reacting to subdued equity markets," said Ben Westmore, commodities analyst at the National Bank of Australia. “The market is reassessing global economic conditions."

US light, sweet crude fell 74 cents to $71.23 a barrel by 8:17am, while ICE Brent crude fell 64 cents to $74.87 a barrel. The market is still trading at less than half the record highs of over $147 it hit in July 2008.

US inventories of distillates - which include heating oil as well as key fuels for industry such as diesel - fell by 1 million barrels last week, according to the US Energy Information Administration, while demand was down 7.9% on the year.

“I think energy demand is still not there to help keep oil above $70 on a sustained manner," Westmore said.

Japan’s Nikkei stock average edged higher on Thursday as Honda Motor Co and other carmakers gained, but rises were expected to be capped after US data suggested that economic recovery might be more shaky than hoped.

Employment reports showed a higher-than-expected loss of US private-sector jobs in July, while planned layoffs at US firms increased during the same period for the first time in six months, suggesting the labor market remains persistently weak.

Energy markets have been looking to broader economic data for signs of an end to the recession and a potential rebound in oil demand. Optimism has helped lift crude from below $33 a barrel in December.

The wide price swings in oil in recent years have spurred calls for greater market regulation. The US Commodity Futures Trading Commission, which oversees regulated futures exchanges, held its third and final hearing on Wednesday into whether it should limit how many futures contracts hedge funds, investment banks and other speculators can control to help limit big movements in energy prices.

Funds that invest heavily in the sector argued that they were not responsible for the wild volatility in energy prices, while CFTC chairman Gary Gensler reiterated the commission should “seriously consider" setting position limits.

The UK Financial Services Authority and the UK Treasury also met with oil industry representatives to discuss market transparency and regulation, but issued no statement after the encounter.