Oil pares gains on falling demand

Oil fell, paring its sixth weekly increase, as some traders considered recent gains excessive because of doubts the global economic slump is nearing an end.

Goldman Sachs Group Inc said that oil’s rally was vulnerable to a correction as demand remains a constraint. US crude stockpiles rose to the highest since July 1993 last week, indicating limited fuel demand in the world’s largest economy. The dollar strengthened against the euro today, limiting the appeal of commodities to hedge against inflation.

“It’s too early to say we have a recovery, we need to see what the economy does in the next few months,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “We could easily see a correction below $50 again.”

Crude oil for May delivery declined as much as $1.01, or 1.9 per cent, to $53.33 a barrel on the New York Mercantile Exchange. It was at $53.41 a barrel at 11:09 am London time.

Oil futures have jumped 36 per cent in the five weeks through March 20. Crude is set for its sixth consecutive week of gains on signs of an economic recovery in the US, the world’s biggest oil consumer, where new home sales increased last month and durable goods orders rose.

The discount for crude delivered in May, the front-month contract in New York, compared with July futures widened to as much as $3.47 a barrel this week from $1.18 earlier in the month. That indicates a surplus of oil for immediate delivery.

'Market vulnerable’
“The current rally was accompanied by weakened time- spreads and weaker fundamentals,” Jeffrey Currie, a London- based analyst at Goldman, said in the bank’s Energy Weekly report yesterday. “This leaves the market vulnerable to near-term pullback.”

US oil supplies rose 3.3 million barrels to 356.6 million in the week ended March 20. It was the 22nd gain in 26 weeks and left stockpiles 13 per cent higher than the five-year average for the period.

Crude oil stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered, fell 2.21 million barrels to 31.7 million last week.

Consumption of fuels rose 2.2 per cent to 19.2 million barrels a day last week, the Energy Department report showed. Daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2 per cent from a year earlier.

Brent crude oil for May settlement fell as much as 85 cents, or 1.7 per cent, to $52.53 a barrel on London’s ICE Futures Europe exchange. It traded at $52.61 at 11:09 am London time.