Oil Falls on Concern Demand to Drop More Rapidly Than Supply

By Angela Macdonald-Smith and Christian Schmollinger

Jan. 12 (Bloomberg) -- Crude oil fell for a fifth day in New York, extending last week’s 12 percent drop, on concern demand will decline more rapidly than the Organization of Petroleum Exporting Countries cuts output.

Deutsche Bank AG on Jan. 10 lowered its forecast for the average price of crude oil this quarter by $10 to $45 a barrel, citing expectations consumption will fall by 1 million barrels a day this year. U.S. supplies have climbed in 13 of the past 15 weeks as the economy slows, according to the Energy Department.

“What OPEC has done is probably going to be enough to tighten up the market and support the oil price, but it will take a while for those production cuts to eat away at inventories,” said David Moore, a commodity strategist at Commonwealth Bank of Australia. “The near-term contracts are still very low and that reflects the fact we still have ample supplies at the moment.”

Crude oil for February delivery fell as much as 68 cents, or 1.7 percent, to $40.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $40.58 at 9:40 a.m. in Singapore.

OPEC, supplier of more than 40 percent of the world’s oil, agreed last month to cut production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 in the last six months.

The group may cut its production further should crude prices continue to decline, Iran’s OPEC Governor Mohammad Ali Khatabi was cited as saying Jan. 11 by the Oil Ministry. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.

‘Steep Curve’

On Jan. 9, prices in New York dropped 2.1 percent to $40.83 a barrel after the U.S. said it lost 2.589 million jobs last year, the most since 1945.

Oil for March delivery is at a more than $5 a barrel premium to the front-month contract, while the April future is $9 above February delivered supplies. The situation where near-term crude is cheaper than later-dated oil is called a contango.

“The curve is very steep, which is consistent with the view that the market tightens up in time and we get higher prices down the track,” Commonwealth’s Moore said.

Oil for February dropped last week as stockpiles at Cushing, Oklahoma, the delivery point for crude traded at Nymex, climbed to 32.2 million barrels, the highest since the U.S. Energy Department started tracking the supplies in 2004. Total capacity in the area is around 47.7 million barrels, according to estimates from Andy Lipow at Houston-based consultants Lipow Oil Associates LLC.

Last week’s decline followed a 23 percent jump the week before, the most since August 1986.

Brent crude prices on Jan. 9 fell 0.6 percent to $44.42 a barrel on London’s ICE Futures Europe exchange.

U.S. Gasoline

The average price of regular gasoline at U.S. filling stations rose to $1.78 a gallon on speculation refinery maintenance may reduce stockpiles in the weeks ahead.

The motor fuel gained 12 cents, or 7.2 percent, in the three weeks ended Jan. 9, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide.

“This is simply a bounce after hitting bottom finally and it reflects a slight change in our demand behavior,” Lundberg said in a Bloomberg Radio interview yesterday. “Demand at these much lower prices is not down as much as it was in the fall although it is still down.”

To contact the reporters on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net