Crude Oil Futures Drop on Retail Sales Decline, Saudi Comments

By Robert Tuttle


Jan. 16 (Bloomberg) -- Crude oil fell in New York after a U.S. government report showed U.S. retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production.

U.S. sales dropped 0.4 percent following a revised 1 percent gain in November, the Commerce Department said yesterday. The figure capped the weakest year since 2002. Saudi Oil Minister Ali al-Naimi said the Organization of Petroleum Exporting Countries will raise supply, if justified, after President George W. Bush urged an increase.

``Economic news right now is really tipping toward slowdown or recession in the U.S.,'' said James Cordier, president of Liberty Trading Group in Tampa. ``That means tighter spending and the inability of people to pay $100 for crude oil and $3.50'' a gallon for gasoline.

Crude oil for February delivery fell as much as 40 cents, or 0.4 percent, to $91.50 a barrel on the New York Mercantile Exchange at 10:13 a.m. in Sydney. Yesterday, futures fell $2.30, or 2.4 percent, to settle at $91.90 a barrel, the lowest close since Dec. 20. They reached a record $100.09 on Jan. 3 and are up 74 percent from a year ago.

Contributing to the decline in retail sales, purchases at gasoline service stations dropped 1.7 percent in December, according to the Commerce Department report. In the U.S., the world's biggest oil user, a sustained slump in consumer spending brought on by falling property values and rising unemployment may cut energy use.

`Challenged' Economy

``It does now appear that we are in a slowdown of sorts or are heading to a slowdown, and the retail numbers suggest that,'' Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut, said yesterday. ``People are going to have a hard time affording discretionary driving, discretionary heating and discretionary use of energy.''

OPEC said Dec. 14 that global oil demand will rise 1.5 percent to an average 87.1 million barrels a day in 2008, little changed from the group's estimate the previous month. The International Energy Agency expects a 2.5 percent increase.

Brent crude for February settlement, due to expire tomorrow, fell $1.94, or 2.1 percent, to $90.98 a barrel, on London's ICE Futures Europe exchange.

The average U.S. pump price of regular gasoline fell 0.9 cent to $3.061 a gallon yesterday, according to AAA, the nation's biggest motoring club.

Al-Naimi's comments on OPEC production came before members are scheduled to meet Feb. 1 to discuss a possible increase in production. The 13 members account for about 40 percent of world oil supply and Saudi Arabia is the group's biggest producer.

Bush on Oil

``I would hope that as OPEC considers different production levels they would understand'' that if their ``biggest consumers' economy suffers, it will mean less purchases, less oil and gas sold,'' Bush said in Riyadh yesterday before a meeting with Saudi entrepreneurs.

OPEC left output unchanged when it last met on Dec. 5, and the group's president, Chakib Khelil, said on Jan. 5 that markets remain adequately supplied.

OPEC ``took to heart what President Bush said,'' said Phil Flynn, a commodities trader for Chicago-based Alaron Trading. ``If the economy slows, it's going to hurt'' oil producers.

A U.S. Energy Department report today will probably show that crude oil inventories gained 1.25 million barrels last week, according to the median of nine estimates in a Bloomberg News survey of analysts. An increase would be the first gain in supplies in nine weeks.

Distillate Inventories

Inventories of distillate fuel, heating oil and diesel, gained 1.55 million barrels from 128.7 million the prior week, according to the 10 analysts who gave product-supply estimates. Eight of the analysts forecast an increase and two said there was a decline.

``We are looking for a first build in crude supplies in quite some time,'' said Liberty Trading's Cordier. ``We are going to get through the winter after all.''

Bets that February crude oil will fall below $90 a barrel were the most actively traded options contracts on the Nymex yesterday. The put contracts, which represent the right to sell oil at that price, rose 8 cents to 13 cents, or $130 per contract, according to data compiled by Bloomberg. One options contract is for 1,000 barrels of oil.