Crude Oil Falls on Concern Economic Slowdown to Temper Demand

By Christian Schmollinger

March 27 (Bloomberg) -- Oil fell in New York, paring this week’s gains, on signs a deepening recession in Japan will cut demand for fuels in the world’s third-biggest crude user.

Retail sales in Japan fell a more-than-expected 5.8 percent in February, the Trade Ministry said today. Nippon Oil Corp., the country’s largest refiner, will cut processing runs in April by 23 percent. U.S. crude stockpiles rose to the highest since July 1993 last week.

“We’ve got storage at the highest level in 16 years and still weak demand,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore.

Crude oil for May delivery declined as much as 69 cents, or 1.3 percent, to $53.65 a barrel on the New York Mercantile Exchange. It was at $54.02 a barrel at 8:25 a.m. London time. Prices are up 6 percent this week.

“The rally is based on expectation and hope for the future so I do expect a drop in prices,” Kornafel said.

Oil futures have jumped 36 percent in five weeks through March 20. Crude is set for its sixth consecutive week of gains on signs of an economic recovery in the U.S., the world’s biggest oil consumer, where new home sales increased last month and durable goods orders rose.

“There is a shift in perception in the market that things are settling down and we’ll start to see a recovery,” Russell Norton, head of commodities sales at Barclays Capital, said in an interview in Singapore today. “To confirm the rally in prices, we have to see inventories fall.”

U.S. Inventories

U.S. oil supplies rose 3.3 million barrels to 356.6 million in the week ended March 20. It was the 22nd gain in 26 weeks and left stockpiles 13 percent higher than the five-year average for the period.

Crude oil stockpiles at Cushing, Oklahoma, where New York- traded West Texas Intermediate crude is delivered, fell 2.21 million barrels to 31.7 million last week.

Consumption of fuels rose 2.2 percent to 19.2 million barrels a day last week, the Energy Department report showed. Daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2 percent from a year earlier.

The Organization of Petroleum Exporting Countries will reduce crude-oil shipments by 3.3 percent in the month ending April 11, according to Oil Movements. Members will load 22.23 million barrels a day in the period, down from 23 million a day in the month ended March 14, the Halifax, England-based tanker tracker said in a report yesterday.

OPEC has agreed to production cuts of 4.2 million barrels a day since September after prices tumbled from record highs. The group decided against any further output constraints at a meeting in Vienna on March 15. OPEC will convene again there on May 28.

Brent crude oil for May settlement fell as much as 56 cents, or 1.1 percent, to $53.21 a barrel on London’s ICE Futures Europe exchange. It traded at $53.20 at 8:26 a.m. London time.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.