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Oil ends lower as data signal weaker demand

SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed lower Wednesday, pressured as downbeat May data on the nation's economy signaled weaker prospects for oil demand, despite a broad decline in petroleum supplies.

July futures for light, sweet crude (CLN2) fell 70 cents, or 0.8%, to settle at $82.62 a barrel on the New York Mercantile Exchange, giving back Tuesday's 0.8% gain.

"It's the general economic gloom ... with the poor retail-sales figures the latest in a long line of darkening data, and I very much doubt the last," said Matthew Parry, senior oil-market analyst at the International Energy Agency.

Oil prices traded higher shortly after the weekly U.S. supplies update was released, then turned lower again.

The Energy Information Administration reported that crude supplies fell by 200,000 barrels for the week ended June 8. Motor-gasoline supplies dropped by 1.7 million barrels, while distillate stocks declined 100,000 barrels on the week.

Analysts polled by Platts had expected a 2 million-barrel drawdown in crude supplies. They also forecast an increase of 1 million barrels for inventories of gasoline and distillates alike.

On Nymex Wednesday, July gasoline (RBN2) tacked on 0.5 cent, or 0.2%, to $2.66 a gallon, with July heating oil (HON2) lost 1 cent, or 0.4%, to $2.61 a gallon.

Despite the draw, U.S. crude stocks were still amply supplied, sitting 11% over the five-year average, according to James Bambino, Platts oil futures and options editor.

The American Petroleum Institute had late Tuesday reported an unexpected 1.6 million decrease in crude supplies for last week. Read more on API data.

Gauging oil demand

But domestic petroleum demand remains weak.

Total producers supplied over the last four-week period, which offers a measure of demand, averaged about 18.7 million barrels a day, down 1.9% from the same period a year ago, the Energy Information Administration's data showed. Motor-gasoline product supplies averaged 8.8 million barrels a day, down 4.5% from the same time a year ago.

Meanwhile, the latest economic data added to the concerns over demand.

Lower costs for food and energy pulled the U.S. producer-price index down 1% in May, the Labor Department reported. It was the biggest one-month drop in close to three years. Read more about PPI.

Separately, the Commerce Department said retail sales declined by 0.2% last month on a seasonally adjusted basis. That marked a second-straight monthly decline. Read about retail sales.

"If the global economy slows, and potentially dramatically so, then oil demand growth will certainly decelerate," said Parry.

In its monthly report released Wednesday, the IEA said global oil supply rose slightly in May. The report said that a "springtime slump in oil markets accelerated ... in the wake of the deepening euro-zone crisis, mounting concern over a slowdown in Chinese growth and rising global oil supplies." IRead more about the IEA and global oil supplies for May.

Parry also said he predicts that global oil-demand growth will come in at around 820,000 barrels a day in 2012, "but this forecast is based upon a global economic recovery of about 3.5%."

"However, strip GDP growth back to 2.3% for example -- let's call this my doomsday scenario -- and global oil-demand growth falls back to 340,000 barrels per day," he added, "at such a level the market is going to struggle to clear the oversupply."

OPEC on deck

The oil market also awaits an official meeting Thursday of the Organization of the Petroleum Exporting Countries ministers in Vienna on production quotas.

Rafael Ramirez, Venezuela's oil minister, said Wednesday that the cartel's production ceiling should be maintained. Read more of Ramirez's comments.

OPEC currently has a collective daily ceiling of 30 million barrels. But, according to a Platts survey of OPEC and oil-industry officials and analysts, total production was at 31.75 million barrels a day in May.

On Tuesday, Ali al-Naimi, the oil minister for Saudi Arabia, said his country wouldn't ask OPEC to increase its production levels at this week's meeting. Read the OPEC preview.

The Thursday meeting "will be a doozy with some of [OPEC's] member countries having undergoing regime changes," said Bob van der Valk, a petroleum-industry analyst based in Terry, Mont.

"This meeting could be another bad sign of the ongoing discord within their ranks," he said, noting that Iran and Saudi Arabia are "still enemies" after the Saudis promised to increase their oil production to make up for any shortage from economic sanctions by the West against Iran.

Rounding out the energy action Wednesday, July natural gas (NGN12) gave up the prior session's gains, ending off by 5 cents, or 2.1%, at $2.19 per million British thermal units.

The EIA on Thursday will report its weekly data on natural gas supplies. Analysts polled by Platts expect the report to show a climb of between 71 billion cubic feet and 75 billion for the week ending June 8.