U.S. oil prices fell more than 2 percent on Friday as an unexpected fall in May retail sales in the United States and easing industrial output in China revived concerns about the economy and oil demand.
Friday’s slide snapped a three-day string of higher closes, but for the week oil prices still managed a 3.17 percent rise thanks to the mid-week winning streak.
Prices fell sharply after the U.S. Commerce Department reported that total retail sales fell 1.2 percent in May after April’s upwardly revised 0.6 percent rise. It was the first decline since September.
Crude prices briefly pared losses on news that U.S. consumer sentiment improved in early June to its strongest level in nearly 2-1/2 years.
“The retail sales number put a damper on things and the report on Chinese inflation had already helped pull oil back,” said Robert Yawger, senior vice president, energy futures at MF Global in New York.
Chinese inflation quickened to a 19-month high in May, and some analysts said China needs to raise interest rates and let the yuan strengthen.
U.S. crude for July fell $1.70, or 2.25 percent, to settle at $73.78 a barrel, trading from $73.26 to $75.64.
ICE Brent fell 94 cents to settle at $74.35, but ended up 4.6 percent on the week.
Recent record high crude oil stockpiles at the Cushing, Oklahoma, delivery point for U.S. benchmark crude, have helped keep U.S. front-month crude priced below the next month’s contract and at a discount to the London Brent crude contract.
“The front (spread) stretched back out more than $1.50 a barrel today, a possible signal of a renewed build in Cushing supply in next week’s data,” Jim Ritterbusch, president at Ritterbusch & Associates said in a research note.
Cushing inventories rose 111,186 barrels in the week to June 8, to a record 40 million barrels, energy industry data provider Genscape said on Thursday.
The U.S. retail sales report initially weighed on the stock market, but the better-than-expected read on consumer sentiment and strong technology sector lifted the Nasdaq and the stock market ended higher. .N
The consumer sentiment report helped the dollar strengthen against the yen and euro. <USD/>
A stronger dollar can pressure oil by making it more expensive for consumers using other currencies and also pulling investors from energy into foreign exchange markets.
Most analysts expect fuel demand recovery in the euro zone to slow, making the market more reliant on China to drive growth but hindering China’s ability to play that role.
On Thursday, a report of a 48.5 percent surge in Chinese exports in May helped oil prices surge 2 percent.
The International Energy Agency also revised its 2010 oil demand growth forecast higher in a report on Thursday, adding to the bullish sentiment in the market after Wednesday’s government oil inventory report showed lower crude stockpiles.
But Friday’s data showing China’s industrial output slowed in May fueled concerns about slowing economic growth.
UAE Oil Minister Mohammed al-Hamli told Reuters at a Beijing conference on Friday that oil markets were still oversupplied but not excessively and that a $70 to $80 per barrel price range was acceptable.
Prices are 15 percent below the 19-month high of $87.15 touched in early May.
MF Global’s Yawger and other sources noted that Friday’s early $75.64 intraday high was near $75.70, where technical resistance was expected, at the 50-percent retracement of the drop from the May 3 $87.15 high, a 19-month peak, to the $64.24 low on May 20, the day the June contract expired.
By Alejandro Barbajosa
Tags: Chinese economy, commerce department, euro zone, investors, oil prices, stock market, us consumer, us retail sales
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