Oil Falls a Third Day as Stockpiles Gain on Economic Slowdown

By Christian Schmollinger

April 15 (Bloomberg) -- Oil fell for a third day as U.S. crude stockpiles climbed amid signs of further economic weakness in the world’s biggest energy consumer.

U.S. retail sales unexpectedly fell 1.1 percent in March, the Commerce Department said yesterday. The industry-funded American Petroleum Institute said that oil inventories rose last week to their highest since 1990. The weekly Department of Energy report today will probably show that stockpiles increased to the highest since 1993.

“The fundamentals still don’t suggest any strength,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “The supply levels are still at really high numbers for crude and that’s unlikely to change with the refinery capacity rates still very low.”

Crude oil for May delivery fell as much as 49 cents, or 1 percent, to $48.92 a barrel in electronic trading on the New York Mercantile Exchange. It was at $49.32 a barrel at 10:09 a.m. Singapore time. Oil is up 11 percent this year after tumbling 54 percent in 2008. Yesterday, crude dropped 64 cents, or 1.3 percent, to settle at $49.41 a barrel.

The U.S. used an average of 18.9 million barrels a day in the four weeks ended April 3, down 4.4 percent from a year earlier, according to the Energy Department, the lowest level since October.

Gross domestic product will contract by 3.8 percent in North America in 2009, the International Energy Agency said in a report April 10, dropping an earlier forecast for a recovery in the economy and oil demand in the second half of the year.

Increased Output

As OPEC nations make their biggest oil production cuts on record, Brazil, Russia and the U.S. are pumping more, which may crude back below $50 a barrel as demand slows.

U.S. imports fell by 148,000 barrels a day in January just as America’s production increased by 153,000, according to data compiled by the Energy Department in Washington. More oil is flowing just as the slowing economy causes consumption to contract for the second consecutive year.

Crude’s highest closing price this year was at $54.34 a barrel on March 26, up from a low of $33.98 a barrel on Feb. 12.

“Some of that optimism that we’re turning a corner economically has run its course,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “We’re not seeing enough good news flowing to extend the rally in oil prices.”

Equities Market

An Australian leading economic index fell in February to contract at the fastest annual pace since 1982.

The index, a gauge of future economic growth, dropped 0.3 percent to 248.6 points from 249.4 in January, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. The index shrank at an annualized rate of 5.1 percent.

U.S. equities dropped for the first time in four days yesterday as declines in retail sales offset optimism from Federal Reserve Chairman Ben S. Bernanke that the pace of the economy’s slump may be slowing.

The Standard & Poor’s 500 Index slipped 1.3 percent to 847.16. The Dow Jones Industrial Average dropped 94.7 points, or 1.2 percent, to 7,963.11.

Asian stocks dropped for the first time in five days as the outlook dimmed for earnings for companies in Japan, the world’s third-largest oil user.

“There are concerns that the equity market gains can’t be sustained now that we’re near 8,000 in the Dow,” said Commodity Warrant’s Hassall. “If we see equities come off after this recent rally it will be difficult for crude oil to stay at this level.”

Inventories Gain

The API reported yesterday that oil supplies increased 6.51 million barrels to 371.2 million last week.

Oil-supply totals from the API and DOE moved in the same direction 76 percent of the time over the past four years, according to data compiled by Bloomberg.

An Energy Department report today may show supplies rose 1.75 million barrels last week, according to the median of 14 responses in a Bloomberg News survey. Stockpiles in the week ended April 3 were the highest since July 1993 as refiners shut units for maintenance and producers outside the OPEC countries increased shipments.

“Obviously we’ve got a big overhang in inventories,” said Commodity Warrants’ Hassall. “Demand still remains very weak.”

Brent crude oil for May settlement declined 18 cents, or 0.3 percent, to end the session at $51.96 a barrel on London’s ICE Futures Europe exchange yesterday. The contract expires today. No trades have been reported so far.

The more-active June contract fell 27 cents, or 0.5 percent, to $52.66 a barrel at 9:55 a.m. Singapore time.

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