Crude Oil Falls After IEA Cuts Demand Forecast to Five-Year Low

By Christian Schmollinger and Ayesha Daya

April 13 (Bloomberg) -- Crude oil fell in New York after the International Energy Agency said 2009 demand may slump to the lowest in five years as factories shut and car sales tumble amid a deepening global recession.

Oil consumption will fall 2.4 million barrels a day this year, about the same amount that Iraq produces, to 83.4 million barrels a day, the IEA said on April 10 as trading in New York and London was closed for the Good Friday holiday. U.S. crude supplies are at their highest since July 1993, the Energy Department said on April 8.

“Data such as the IEA’s downgrade of expected demand show the commodities rally we’ve seen recently may have short legs,” said Ronald Smith, chief strategist at Alfa Bank in Moscow. “The global economy is only showing the most tentative signs of having found a bottom, and those signs may yet prove false.”

Crude oil fell as much as $1.34, or 2.6 percent, to $50.90 a barrel in electronic trading on the New York Mercantile Exchange at 10:37 a.m. in London.

Oil futures fell 0.5 percent last week, snapping seven weeks of gains. Crude has risen 16 percent this year, after tumbling 54 percent in 2008. Other commodities also rose last week. The Reuters/Jefferies CRB Index of 19 commodities advanced 4.17 points, or 1.9 percent, to 227.88.

Oil vs Gold

Investor Jim Rogers said he prefers oil over gold as he believes the International Monetary Fund will sell its reserves following the recent rally in the precious metal.

“The IMF is trying to sell its gold,” Rogers, chairman of Singapore-based Rogers Holdings, said in an interview with Bloomberg Television. “The IMF is one of the largest holders of gold so you’ve got this huge supply overhang.”

Oil demand will shrink by 2.8 percent this year as worldwide gross domestic product declines by 1.4 percent, according to the IEA, the adviser to 28 consuming countries. The organization had until now assumed the global economy would expand in 2009.

“The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010,” the Paris-based agency said in its monthly report.

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended April 7, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 12,493 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 5,947 contracts, or 91 percent, from a week earlier.

Brent Falls

Brent crude oil for May settlement fell as much as $1.01, or 1.9 percent, to $53.05 a barrel on London’s ICE Futures Europe exchange at 10:37 a.m. in London. Brent is trading at a premium of more than $2 a barrel to the West Texas Intermediate contract in New York, swinging from a discount of 43 cents on March 31.

“As long as the inventories in the U.S. remain very high then this premium will keep as it is,” said Ken Hasegawa, a commodity derivative sales manager at brokerage Newedge in Tokyo. “May WTI will be weak until expiry.”

The May contract will close on April 21.

U.S. crude-oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993, the report from the U.S. Energy Department showed.

Global oil demand falls to an annual low during the second quarter as refineries close to perform maintenance after winter in the Northern Hemisphere.

Analysts surveyed by Bloomberg News were split over whether prices will rise or fall this week as OPEC production cuts coincide with declining demand.

Twelve of 35 analysts surveyed, or 34 percent, said futures will increase through April 17. Another 12 respondents forecast that oil will be little changed. Eleven expected a decline.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Ayesha Daya in Dubai adaya1@bloomberg.net