Bloomberg – Oil tumbled the most in eight weeks as business activity in the U.S. expanded in August at the slowest rate this year, signaling that the economic recovery is cooling.

Oil dropped below $73 as the Institute for Supply Management-Chicago Inc. said its business barometer fell to 56.7, the lowest level since November. Figures above 50 signal expansion. Oil supplies rose to a one-month high last week, according to a Bloomberg survey before a U.S. report tomorrow.

“We’re in for a generally bearish market unless we start to see some major changes in the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are kind of expecting another relatively bearish inventory report.”

Oil for October delivery fell $2.34, or 3.1 percent, to $72.36 a barrel at 12:44 p.m. on the New York Mercantile Exchange. Earlier, it lost 3.2 percent, the biggest drop since July 1. Prices have tumbled 8.3 percent this month and have risen 3.4 percent in the past year.

U.S. oil inventories probably climbed 1.3 million barrels, or 0.4 percent, in the seven days ended Aug. 27 from 358.3 million a week earlier, according to the median of 14 analyst estimates before the Energy Department report tomorrow. That would leave stockpiles at their highest level since July 23. Ten of the analysts forecast an increase.

The industry-funded American Petroleum Institute is scheduled to release its own inventory numbers at 4:30 p.m. today in Washington.

Consumer Confidence

Oil pared losses earlier in the day after reports of higher-than-estimated increases in consumer confidence in August and home prices in June.

The Conference Board’s confidence index rose to 53.5, rebounding from a five-month low. The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, topping the 3.5 percent median estimate of economists surveyed by Bloomberg News. The gain showed the market was stabilizing before sales plunged in July.

Oil prices are likely to rise to $95 a barrel by the end of the year, according to a forecast by Hussein Allidina, head of commodity research at Morgan Stanley.

“In the near-term, we’re going to see some concern as refiners here in the U.S. go down for maintenance,” he said on Bloomberg Television’s “InBusiness” with Scarlet Fu. “As we go into the back half of the year things do start to look more positive.”

Oil for December delivery was $2.75 a barrel more than for October today, a record price spread between the two contracts. The differential was $1.59 a week ago.

‘Choppy’ Range

Oil prices are likely to stay in their “large, choppy sideways” range until next year, said Gordon Manning, a Sydney- based technical analyst at National Australia Bank Ltd.

“I would take a medium- to long-term view to the end of consolidation, three months plus,” he said. Oil has traded in roughly a $68-to-$83 price range since May.

Hurricane Earl, a Category 4 storm with winds of 135 miles (217 kilometers) an hour, was heading for the U.S. East Coast, the U.S. National Hurricane Center said in an advisory at 11 a.m. Miami time. The storm was about 1,070 miles south-southeast of Cape Hatteras, North Carolina, and heading west-northwest at 14 mph.

Tropical Storm Fiona trails Earl across the Atlantic Ocean. Both storms are forecast to miss the Gulf of Mexico, the top U.S. oil producing and refining region.

Storm Forecast

“If it turns out these new storms are going to miss the Gulf, I think they’ll become a very bearish event for oil,” said Phil Flynn, vice president of research at PFGBest in Chicago. “They could really reduce demand for gasoline over the Labor Day weekend.”

Labor Day is the traditional end of the summer driving season, the peak period for U.S. gasoline demand. The holiday falls on Sept. 6 this year.

Gasoline consumption fell 0.9 percent to 9.38 million barrels a day in the week ended Aug. 20, according to the Energy Department.

Brent crude for October settlement dropped $1.60, or 2.1 percent, to $75 a barrel on the ICE Futures Europe Exchange in London.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

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