Oil fell to an eight-month low as applications for unemployment benefits hovered near the highest level of the year, indicating that fewer commuters will need fuel to get to work.
Prices dropped 3.1 percent after the Labor Department reported jobless claims of 386,000 in the week ended June 23 and revised up the previous week’s figure. European Union leaders focused on immediate help for Spain and Italy at the start of a two-day summit to address their financial crisis.
“The jobless claims number was clearly a negative for the market and obviously the revision to the prior week was very disturbing,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “This market is extremely nervous about the EU summit.”
Crude for August delivery declined $2.52 to $77.69 a barrel on the New York Mercantile Exchange, the lowest settlement since October. Futures have fallen 25 percent this quarter, heading for the biggest drop since the final three months of 2008.
Brent oil for August settlement decreased $2.14, or 2.3 percent, to $91.36 a barrel on the London-based ICE Futures Europe exchange. It has retreated 26 percent since March 30.
“The economic recovery’s kind of stalled here in the U.S.,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It doesn’t seem that our economic problems are really gone.”
Jobless claims declined by 6,000 in the Labor Department report. The prior week’s reading was revised up to 392,000 from 387,000, matching an April figure as the steepest of 2012.
The U.S. economy grew 1.9 percent in the first quarter, reflecting a gain in consumer spending that now shows signs of cooling as the labor market weakens, Commerce Department figures showed today. The government’s gross domestic product estimate is the third and final for the first quarter and follows a 3 percent increase in the prior quarter.
Crude also retreated as equities snapped a two-day rally in the Standard & Poor’s 500 Index as European leaders began the meeting on the region’s debt crisis and JPMorgan Chase & Co. tumbled on a report that the lender’s trading losses from credit derivatives may total as much as $9 billion.
The 27 EU government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-area records at the summit that started today in Brussels, Finnish Prime Minister Jyrki Katainen said.
German Chancellor Angela Merkel has rejected calls to investigate joint debt or do more to cut Spanish and Italian borrowing costs and said her focus will be on measures to boost economic growth.
“The market is waiting to see what the Europeans are going to do,” McGillian said. Spain and Italy “are the dark clouds on the horizon right now.”
Economic confidence in the euro area slumped to the lowest level in more than 2 1/2 years in June and German unemployment increased more than economists forecast, reports showed today, before the summit began.
“The economic numbers are not turning around to show anything good and the problems in Europe are not getting better,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The fundamentals are still bearish for oil.”
Oil consumption in Europe will decline both this year and next, and slower growth in China may also curb demand, the U.S. Energy Department said June 12 in its Short-Term Energy Outlook. Oil demand in the U.S., the world’s largest consumer, will drop for a second year in 2012, the department said.
Crude also fell as the Supreme Court upheld the core of President Barack Obama’s health-care overhaul and as the U.S. granted China and Singapore exemptions from financial sanctions related to Iranian oil imports.
The health-care ruling is being “viewed in the market as an anti-growth story, which is helping to pressure energy,” Kilduff said.
The court, in a 5-4 decision, said Congress has the power to make Americans carry insurance or pay a penalty. That requirement is at the center of the law, which also forces insurers to cover people with pre-existing health conditions.
U.S. financial sanctions related to Iranian oil imports go into effect today on any petroleum-related purchase through Iran’s central bank. China and Singapore have “significantly reduced” their purchases of Iranian oil, winning exemptions from the sanctions, Secretary of State Hillary Clinton announced today in an e-mailed statement.
The EU, Iran’s biggest buyer after China, is due to stop importing the Islamic republic’s oil July 1. The sanctions are designed to pressure Iran to halt its nuclear program.
Iranian oil production fell 50,000 barrels a day to 3.225 million in May, the lowest level since June 1992, according to a Bloomberg survey of oil companies, producers and analysts. The other members of the Organization of Petroleum Exporting Countries made up for the Iranian loss, with output from the entire group rising 20,000 barrels to 31.595 million last month.
Electronic trading volume on the Nymex was 502,955 contracts as of 2:37 p.m. in New York. Volume totaled 468,779 contracts yesterday, 16 percent below the three-month average. Open interest was 1.43 million.
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