Oil Falls a Second Day on Signs Prices Will Curb U.S. Demand

By Christian Schmollinger

April 11 (Bloomberg) -- Crude oil fell for a second day in New York on signs that high prices and a slowing economy will curb U.S. fuel consumption.

The four-week average of implied U.S. fuel demand was less than last year for the 10th straight week, the Energy Department reported on April 9. Gasoline use may drop this summer for the first time in 17 years, the agency said. Crude reached a record $112.21 a barrel on April 9.

``You look at the supply and demand fundamentals in the transportation fuel market, demand has been weak,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``The fundamentals don't support the rally in oil pricing so some caution has returned to the market.''

Crude oil for May delivery fell as much as 62 cents, or 0.6 percent, to $109.49 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $109.92 at 2:59 p.m. Singapore time. Yesterday, futures fell 76 cents, or 0.7 percent, to settle at $110.11 a barrel. Prices are up 77 percent from a year ago.

Crude oil in New York rose to a record $112.21 a barrel on April 9 after an unexpected decline in U.S. oil inventories.

``The demand situation is deteriorating all the time,'' said Rowan Menzies, head of research at Commodity Warrants Australia Ltd. in Sydney. ``There is a disconnect between the price of oil right now and what the data is telling us in terms of demand slowing down.''

Weak Dollar

Brent crude for May settlement was at $108.29 a barrel, up 9 cents, on London's ICE Futures Europe exchange at 3 p.m. Singapore time. The contract yesterday declined 0.3 percent to settle at $108.20, after reaching a record $109.98.

Oil prices also fell as the euro declined from a record against the dollar. The dollar's drop has encouraged investors to buy commodities and made oil cheaper for buyers in other currencies.

Federal Reserve officials anticipated the U.S. economy will shrink in the first half of the year and expressed some concern about ``a prolonged and severe economic downturn'' as they cut interest rates last month, according to minutes of the March 18 Federal Open Market Committee meeting, released April 8.

U.S. implied fuel demand averaged 20.5 million barrels a day in the past four weeks, down 0.4 percent from a year earlier, the Energy Department said.

``Everyone seems to be blithely ignoring the fundamentals of supply and demand at the moment,'' said Commodity Warrants' Menzies. The economic situation in the U.S. ``should be having an impact on people's perceptions of what demand will do in the next three months.''

Crude oil may fall next week as imports increase and U.S. refiners operate at below-average rates, bolstering inventories.

Fifteen of 28 analysts surveyed by Bloomberg News, or 54 percent, said prices will drop through April 18. Eleven of the respondents, or 39 percent, said futures will rise and two forecast that prices will be little changed. Last week, 47 percent said oil would decline.

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