Oil Prices Drop after National Unemployment Claims Reach 3-Month Pinnacle

August 5, 2010

In response to last week’s report of a 3-month high in the amount of U.S. citizens filing applications for unemployment benefits, crude oil prices fell for a second day this week.

Oil fell up to 1.1% after the Labor Department released a report last week that initial jobless claims had recently increased by 19,000 to a total of 479,000 – the highest increase in unemployment applications since April.

The United States Energy Department reported that crude oil supplies in the Midwest were at a record high, with fuel supplies nationwide rising.  With increasing supply, oil prices will have to continue dropping to stimulate demand.

“The economic data doesn’t bode well for oil demand.  It’s hard to justify oil near $82 a barrel with the economy struggling,” commented Michael Lynch, President of Strategic Energy & Economic Research in Winchester, Massachusetts.

Yesterday, crude oil for September delivery fell 52 cents, or 0.6%, to $81.95 a barrel on the New York Mercantile Exchange.  However, futures are still up 14% from last year.  On the London-based ICE Futures Europe exchange, brent crude oil (sourced from the North Sea) for September settlement dropped 68 cents, or 0.8%, to $81.52 a barrel.

Unemployment claims were estimated to fall to 455,000 last month, using a median of 43 projections.  However, those estimations fell short as numbers increased from the prior week of 460,000 to a previously-reported 457,000.

The country’s jobless rate rose to 9.6% in July, up .1% from June’s numbers.

Crude oil inventories reached the highest recorded level recorded since 1990 in the Midwest region as they rose to 97.7 million barrels in the week ended July 30th.

Gasoline supplies increased 729,000 barrels, or 0.3%, to 223 million, the highest level since April 30th.  Stockpiles of distillate fuel, which includes heating oil and diesel fuel, rose 2.17 million barrels to 169.7 million barrels, making it the highest amount since the week ended Oct. 16th.

U.S. fuel consumption was also reported to have dropped 2.5% to 19.3 million barrels a day last week.

The Organization of Petroleum Exporting Countries (OPEC) will reduce shipments this month as many refineries close for periodic maintenance.  OPEC will ship 23.33 million barrels a day in the 4 weeks prior to Aug. 21th, down 1.8% from 23.75 million barrels a day in the month ended July 24th.

The world’s biggest state-owned oil company, the Saudi Arabian Oil Co., lowered official selling prices on all crude oil for customers in Asia and Europe for September, and dropped prices for light grade oil to the United States.