Crude Oil Falls on Forecast for Fuel Supply Gain, Lower Demand

By Mark Shenk

July 30 (Bloomberg) -- Crude oil fell, approaching a 12-week low, before an Energy Department report that's forecast to show fuel supplies increased.

The department may say that gasoline supplies rose for a fifth week, according to a Bloomberg News survey of analysts. Consumption of the motor fuel has declined for 14 weeks as high pump prices have caused people to cut back on their driving, MasterCard Inc. reported yesterday.

``People are waiting on the DOE report before making any big bet,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``There's a lot more downside to the market. We are looking for prices to head toward $110 in the medium term.''

Crude oil for September delivery fell 38 cents, or 0.3 percent, to $121.81 a barrel at 9:13 a.m. on the New York Mercantile Exchange. Futures touched $120.42 a barrel yesterday, the lowest price since May 6. Prices are up 59 percent from a year ago.

Gasoline stockpiles probably increased 350,000 barrels from 217.1 million barrels the week before, the survey showed. Inventories of distillate fuel, including heating oil and diesel, probably rose 2.1 million barrels.

The Energy Department is scheduled to release its weekly report at 10:35 a.m. in Washington.

Gasoline

Gasoline for August delivery fell 0.57 cent to $3.002 a gallon in New York. Prices touched $2.9801 yesterday, the lowest since May 5. Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.5 cents to $3.926 a gallon, AAA, the nation's largest motorist organization, said on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

Signs U.S. demand is declining outweighed this week's renewed threat to supply from Nigeria, Africa's second-largest producer. Nigeria is now pumping less than 1 million barrels of crude a day because of militant attacks, ThisDay newspaper reported, citing an unidentified energy ministry official.

Prior to the escalation of assaults that began in February 2006, Nigeria pumped as much as 2.6 million barrels a day, the paper said.

``The psychology of the market has shifted,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``A year ago the Nigeria news would have sent prices $3 or $4 higher.''

Brent crude oil for September settlement fell 23 cents to $122.48 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.