Oil Falls a Second Day on Speculation Demand Will Remain Weak

By Grant Smith

March 30 (Bloomberg) -- Crude oil declined for a second day as tumbling equity markets indicated that economic activity and demand for fuel may weaken further.

Global demand remains slack and oil is unlikely to reach $60 a barrel this year, Qatar’s Oil Minister Abdullah Bin Hamad Al-Attiyah said. Crude also dropped as the dollar strengthened to its highest against the euro in more than a week, limiting the appeal of commodities used to hedge against inflation.

“Last week’s break above $50 looks as if it was a false dawn for the oil market bulls,” said Christopher Bellew, senior broker at Bache Commodities Ltd. “Although OPEC production restraint has tightened the market, there’s still a big overhang of stocks.”

Crude oil for May delivery fell as much as $1.98, or 3.8 percent, to $50.40 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $50.52 at 10:18 a.m. London time.

Prices declined 3.6 percent to $52.38 a barrel on March 27 on signs of a deepening recession in Europe. Oil climbed 0.6 percent last week, the sixth week of gains.

The MSCI World Index slid 1.5 percent to 812.66 at 8:10 a.m. in London, trimming its biggest monthly gain since 2003, as the U.S. government warned that some banks will need more aid.

New York oil futures have risen 13 percent this month as a slump in the U.S. dollar made commodities cheaper for buyers spending other currencies and increased investor demand for a hedge against inflation.

Rising Inventories

U.S. oil stockpiles reached 356.6 million barrels on March 20, the highest in more than 15 years and 13 percent more than average for the time of year, according to Energy Department records.

Recent oil price gains were driven by the dollar, not improved supply and demand, Qatar’s Al-Attiyah said in an interview in Kuwait yesterday.

“The international economy is still very weak,” he said. “The crisis has not reached the bottom so we have to be very careful.”

The U.S. dollar climbed to $1.3196 against the euro today, the highest since March 19. It last traded at $1.3263, from $1.3292 late in New York on March 27.

Brent crude oil for May settlement fell as much as $1.82, or 3.5 percent, to $50.16 a barrel on London’s ICE Futures Europe exchange. It traded at $50.39 at 10:19 a.m. in London. It dropped 2.8 percent to $51.98 on March 27.

Hedge-fund managers and other large speculators increased their net-long positions in New York crude-oil futures in the week ended March 24, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 17,637 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 4,130 contracts, or 31 percent, from a week earlier.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net