Oil Trades Near $49 After Falling on Gain in U.S. Inventories

By Mark Shenk

April 2 (Bloomberg) -- Crude oil traded near $49 a barrel after falling yesterday as a government report showed that U.S. oil stockpiles rose to a 15-year high and gasoline supplies unexpectedly increased as the recession curbed fuel demand.

Crude-oil inventories climbed 2.84 million barrels to 359.4 million in the week ended March 27, the highest since July 1993, the Energy Department said. A 3 million-barrel increase was forecast, according to a Bloomberg News survey. Gasoline supplies rose by 2.23 million barrels to 216.8 million.

“We are swimming in crude and demand remains terrible,” said Chip Hodge, who oversees a $9 billion natural-resource- company bond portfolio as managing director at MFC Global Investment Management in Boston. “Until we see the global economy bottom or rebound, there isn’t going to be an impetus for a run-up in crude prices.”

Crude oil for May delivery rose 30 cents to $48.69 a barrel on the New York Mercantile Exchange at 9:23 a.m. in Sydney. Yesterday, futures fell $1.27, or 2.6 percent, the lowest settlement since March 18. Oil is up 8.5 percent this year and has dropped 67 percent from a record $147.27 a barrel in July.

Gasoline futures for May delivery declined 4.96 cents, or 3.5 percent, to end the session at $1.3717 a gallon in New York. It was the lowest settlement for a front-month contract since March 18.

The gain in oil stockpiles left supplies 13 percent higher than the five-year average for the period, the Energy Department said. Gasoline inventories were 2.7 percent above the average.

Fuel Inventories

Gasoline stockpiles were forecast to drop 1.5 million barrels, according to the median of 12 analyst responses in the Bloomberg survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 221,000 barrels to 144.2 million last week. The increase left stockpiles 28 percent higher than the five-year average.

“Crude oil supplies are almost at a 16-year high, the gasoline figure was a surprise and nobody is worried about distillate,” said Mike Zarembski, senior commodity analyst at OptionsXpress Holdings Inc. in Chicago.

Refineries operated at 81.7 percent of capacity, down 0.3 percentage point from the week before. A gain of 0.3 percentage point was forecast.

Total daily fuel demand averaged over the past four weeks was 18.9 million barrels, down 4.4 percent from a year earlier, the report showed. It was the lowest consumption for a four-week period since October.

Falling Demand

“We will need to see demand come back before there is any sustained rally in this market,” said Kyle Cooper, an analyst at energy consultant IAF Advisors in Houston. “At this point demand is still falling.”

The Organization of Petroleum Exporting Countries, the International Energy Agency and the Energy Department reduced their 2009 forecasts for oil demand in March because of the recession. They expect consumption to slump by more than 1 million barrels a day this year.

OPEC cut oil output by 1.2 percent to an average 27.395 million barrels a day last month, according to a Bloomberg News survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 25.06 million barrels a day, 215,000 more than their target of 24.845 million.

“OPEC compliance is excellent,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “They have a lot at stake and are doing what they have to.”

OPEC Agreement

OPEC, in a meeting March 15 in Vienna, decided against cutting production targets further because of concern higher prices might harm an ailing global economy. Ministers pledged to tighten compliance with their quotas after crude oil fell more than $100 a barrel from the July record.

“Given what we know about the economy, OPEC has probably cut enough,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “It takes a while before we see the cuts have an impact here.”

Brent crude oil for May settlement fell 79 cents, or 1.6 percent, to end the session at $48.44 a barrel on London’s ICE Futures Europe exchange.

The Group of 20 summit will start tomorrow as world leaders attempt to reach an agreement to stabilize their economies in the midst of the global recession.

“Crude oil will probably drift lower, even with OPEC making cuts, until the economy improves,” said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida.

U.S. stocks advanced as sales of existing homes unexpectedly increased and a manufacturing gauge topped economists’ estimates, overshadowing concern General Motors Corp. will file for bankruptcy.

The Standard & Poor’s 500 Index increased 1.1 percent to 806.61. The Dow Jones Industrial Average rose 114.05, or 1.5 percent, to 7,722.97.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net