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Oil Falls as Data Show Weaker U.S. Economy, Rising Inventories

Nov. 15 (Bloomberg) -- Oil fell for the third time in four days as data showed U.S. economic growth weakened and as crude inventories rose to a three-month high.

Prices fell as much as 1.8 percent as more Americans than forecast submitted claims for unemployment insurance last week and manufacturing in the New York and Philadelphia regions showed contraction. Oil stockpiles increased to 375.9 million barrels last week as production grew to an 18-year high.

“The jobless claims were very high and the economic news was bearish,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Demand will remain soft given how the economy is and production has been very high.”

Crude oil for December delivery fell $1.30, or 1.5 percent, to $85.02 a barrel on the New York Mercantile Exchange at 12:39 p.m. Prices are down 14 percent this year.

Brent crude for January settlement fell 76 cents, or 0.7 percent, to $107.55 on the London-based ICE Futures Europe exchange. The January contract was more active than the December contract, which expires today and gained $1.13, or 1 percent, to $110.74.

U.S. jobless claims surged to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department reported. Analysts surveyed by Bloomberg had expected a gain of 375,000. Several states said the increase was due to Hurricane Sandy that hit the northeastern part of the U.S. in late October, according to the department.

‘Weak Economy’

“Prices are reflecting the bad economic news,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The weak economy is the biggest overall factor in the oil market.”

The Federal Reserve Bank of New York’s general economic index was minus 5.2 this month after minus 6.2 in October. Manufacturing contracted as Sandy knocked out electrical power and limited activity. The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 10.7 in November from 5.7 a month earlier.

“I still think economic uncertainty is the primary driver of the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Crude inventories grew 1.09 million barrels in the week ended Nov. 9, the Energy Department reported. Analysts surveyed by Bloomberg had expected a build of 2.65 million. U.S. oil production rose for a 10th week to 6.71 million barrels a day, the most since May 1994.

‘Bearish’ Numbers

“The strong production and inventory numbers are bearish,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “But it’s probably going to be overshadowed by geopolitical news.”

Oil rose earlier on concern escalating Middle East tension will disrupt supplies. Israel and Palestinian militants in the Gaza Strip exchanged rocket fire and airstrikes a day after Israel killed Hamas’s military leader.

The strikes targeted more than 175 rocket storage or launching sites in Gaza today, the Israeli army said in an e- mailed statement. Israeli fire has killed 13 Palestinians, including Ahmed al-Jabari, the leader of Hamas’s military wing, who died yesterday, according to Ashraf al-Qedra, a spokesman for Gaza’s Health Ministry.

Defense Minister Ehud Barak said Israel may carry out a ground operation in Gaza if needed. Its last one, a three-week offensive starting in December 2008, killed more than 1,100 Palestinians and 12 Israelis.

“We are getting some support from what appears to be an increase of violence in the Middle East,” McGillian said.

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