Oil down on speculation fuel demand will falter

COMMODITIES:OIL DROPPED in New York, headed for its first monthly decline since August, on speculation that fuel demand will falter amid a slowdown in the US economic recovery and Europe's continuing debt crisis.

Futures slipped as much as 1 percent before reports this week that may show US employers hired fewer workers in May and manufacturing cooled. Concern that European governments will struggle to resolve the region’s debt crises weakened the euro against the dollar, reducing the appeal of commodities priced in the US currency.

Trading volumes were lower than average, with public holidays in the US and UK.

Crude for July delivery fell 21 cent, or 0.2 per cent, to $100.38 a barrel at 1.14 pm in electronic trading on the New York Mercantile Exchange. Earlier it touched $99.60. Prices have fallen 12 per cent this month. Brent oil for July settlement lost 46 cent, or 0.4 per cent, to $114.57 on the ICE Futures Europe exchange in London. The contract has fallen 9 per cent this month. The European benchmark contract traded at a premium of $14.19 a barrel to US futures.

US floor trading is closed today for the Memorial Day holiday. Electronic trades will be booked with tomorrow’s transactions for settlement purposes.

The dollar gained 0.4 per cent to trade at $1.4269 against the euro after Greek Prime Minister George Papandreou said he’ll press ahead with new austerity measures even as he failed to win backing from opposition parties. A strengthening dollar limits the appeal of commodities priced in the currency as a hedge against inflation. US manufacturing, which accounts for about 12 per cent of the world’s biggest economy, will probably cool following its strongest showing in seven years.

The Institute for Supply Management’s factory index fell to 57.6 this month, the lowest level since October, according to median forecast in the Bloomberg survey of economists. The Labour Department may say on June 3rd payrolls rose 185,000 after a 244,000 gain in April, according to a separate survey.

“The employment data will be the key this week to really see what’s happening in the US”, said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who predicted oil will average $100 this year. – (Bloomberg)