Crude Oil Tumbles More Than $2 on Signs of Weaker Demand Growth

June 8 (Bloomberg) -- Crude oil plunged more than $2 a barrel from a nine-month high in New York on concern that rising interest rates may lead to slower growth in demand.
U.S. Treasury 10-year notes are poised for their biggest weekly decline in more than a year on concern economic growth and inflation will encourage central banks to raise interest rates. Cyclone Gonu is dissipating after sweeping across coastal Oman and Iran. Oman's ports opened today for partial operations, Gulf Agency Co. reported.
``The most recent economic data points to a slowdown, bond yields are surging and there's a risk of additional rate increases,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``A weaker economy points to weaker fuel demand.''
Crude oil for July delivery plunged $2.17, or 3.2 percent, to settle at $64.76 a barrel on the New York Mercantile Exchange. It was the lowest close since May 31. Yesterday's close was the highest since Sept. 7. Prices fell 0.5 percent this week and are 8 percent lower than a year ago.
Federal Reserve Bank Chairman Ben S. Bernanke said on June 5 that while inflation will probably ``moderate gradually over time, the risks to this forecast remain to the upside.'' Cleveland Fed President Sandra Pianalto said on June 6 that prices are rising too quickly. The European Central Bank increased its main interest rate to 4 percent on June 6.
``With talk of rising interest rates finally killing the stock market, traders are justifiably concerned about energy demand growth,'' said Michael Fitzpatrick, vice president for energy risk management at Man Financial Inc. in New York.
Cyclone Gonu
Gonu was the strongest storm to hit the Arabian Peninsula since records began in 1945, the Associated Press said. Earlier this week, it was a Category 5 storm, the highest rating on the Saffir-Simpson scale, as it churned across the northern Arabian Sea toward the Persian Gulf.
``There was some concern early in the week that Gonu would hurt Oman's oil industry and move toward Saudi fields,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Gonu has dissipated without causing any damage to the energy infrastructure.''
Brent crude oil for July settlement tumbled $2.62, or 3.7 percent, to $68.60 a barrel on the London-based ICE Futures exchange. It was the lowest settlement since May 31.
West Texas Intermediate crude oil, or WTI, traded at a record discount against Brent, produced in the North Sea. Brent has been higher than WTI this year because of rising crude-oil supplies in Cushing, Oklahoma, the delivery point for New York futures, and threats to supply from Nigeria and Iran.
New Markers
``WTI is normally higher than Brent but that's changed because the supply of crude at Cushing has surged due to refinery outages,'' said Frank Verrastro, director of the Center for Strategic and International Studies energy program in Washington. ``I think we are shifting to new markers. Both Brent and WTI are declining areas.''
The North Sea and Texas are mature oil-producing regions where output is forecast to fall. Norway and the U.K., the biggest North Sea producers, pumped 4.35 million barrels a day last year, down from more than 5.4 million barrels a day in 1996, according to the U.S. Energy Department. Texas pumped 1.06 million barrels a day in 2005, down from 2.55 million in 1980.
U.S. gasoline inventories rose 3.51 million barrels to 201.5 million barrels last week, the biggest gain since January, the Energy Department reported June 6. Supplies in the week ended June 1 were 5.3 percent below the five-year average for the period, the department said.
Sharp Rebound
``If last week's numbers are any indication, we will be seeing a sharp rebound in gasoline inventories in the weeks to come,'' said Antoine Halff, a vice president and head of energy research at Fimat USA Inc. in New York. ``This is a welcome development because of how tight inventories have been.''
Refineries operated at 89.6 percent of capacity last week, a 1.5 percentage point drop from the week before, the department said. The amount of crude-oil processed in distillation units fell 1.6 percent. U.S. refineries usually maximize output of the fuel at this time of year to meet summer demand.
``This week's report shows that crude runs aren't the whole story,'' Halff said. ``The big gain in gasoline inventories suggests that secondary units are coming back strongly.''
The driving season, when U.S. consumption peaks as Americans take to the highways for summer vacations, lasts from the Memorial Day weekend in late May to Labor Day in early September.
``I think the gasoline market has seen its day,'' Wittenauer said. ``Gasoline should lead everything lower, which is normal after we get through Memorial Day.''
Gasoline for July delivery in New York tumbled 6.56 cents, or 3 percent, to $2.1271 a gallon. Futures are down 5.2 percent this week and touched $2.105, the lowest since April 20.