May 3 (Bloomberg) -- Oil traded above $50 a barrel having risen from a 10-week low yesterday after Algeria's energy minister Chakib Khelil said that global fuel demand remains ``very strong.''

Supply may not be sufficient to meet demand in the fourth quarter, when consumption peaks, Khelil said in an interview in Washington. The comments helped prices rise yesterday from their lowest since Feb. 22, reached after reports suggested high fuel prices were slowing growth in the U.S. and Europe.

``Demand is still going to be strong'' this year, said Chris Mennis, owner of oil trader New Wave Energy in Aptos, California. ``A little of the bloom has come off the rose'' but the U.S. economy is still expanding, he said.

Crude oil for June delivery fell as much as 14 cents, or 0.3 percent, to $50.78 in after-hours electronic trading on the New York Mercantile Exchange. It was at $50.77 at 8:54 a.m. Singapore time.

Yesterday, the June contract rose $1.20, or 2.4 percent, to $50.92 a barrel. Futures fell as low as $49.03 in early trading, the lowest since Feb. 22.

``It looks like some of the big New York houses came out and bought in at the lows,'' Mennis said.

New York oil futures have declined 13 percent since reaching $58.28 a barrel on April 4, the highest since the contract began in 1983.

Prices slid as growth forecasts in Europe were lowered, and as the U.S. economy grew at an annual pace of 3.1 percent in the first quarter, the slowest in two years. Increased output from the Organization of Petroleum Exporting countries also swelled U.S. inventories to their highest in almost three years.

OPEC

OPEC, source of 40 percent of the world's oil, probably boosted daily output by 700,000 barrels to 30.4 million this month, Geneva-based PetroLogistics Ltd. estimated on April 26.

OPEC has only 1 million to 2 million barrels a day of spare production capacity, Khelil said. The group should raise its output quota next month to bolster global stockpiles before demand peaks at the end of the year, he said.

``Inventories are high, but demand is still very strong,'' Khelil said. ``We expect huge demand in the fourth quarter of this year.''

OPEC agreed at a March 16 meeting in Isfahan, Iran, to boost oil-production quotas by 500,000 barrels a day to 27.5 million barrels a day. The group also pledged to add another 500,000 barrels as early as May should prices continue to rise. OPEC's next meeting is June 15 in Vienna.

Fourth-Quarter Supply

``With OPEC close to capacity it is hard to see how they can increase production when it's needed,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``If there is any disruption we will see prices soar.''

The International Energy Agency expects world oil demand to reach 86.11 million barrels a day in the fourth quarter, 1.9 percent higher than a year earlier, the Paris-based group said April 12.

The Organization for Economic Cooperation and Development will probably lower its forecast for 2.8 percent growth in 2005 for its 30 member-countries because of the weaker than expected economies in Europe and Japan, the group's chief economist Jean- Philippe Cotis said yesterday.

Manufacturing in the dozen countries using the euro contracted for the first time in almost two years in April, according to a survey of 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc. U.S. manufacturing expanded that month at the slowest pace since July 2003 as factories cut orders and inventories, the Institute for Supply Management said yesterday.

Production

Fourth-quarter oil demand may be easier to meet, given slower demand growth and production increases planned by year-end in Saudi Arabia and Kuwait, New Wave's Mennis said.

``The market's getting ahead of itself,'' he said. ``We're barely into the second quarter.''

U.S. inventories rose 5.4 million barrels to 324.4 million in the week ended April 22, the highest since May 2002, an Energy Department report showed last week.

Supplies probably gained another 1.5 million barrels last week, according to the median forecast from a Bloomberg survey of 13 analysts. Gasoline supplies, already 5.7 percent higher than a year earlier, probably gained another 750,000 barrels last week, the survey showed.

The Energy Department's weekly petroleum report is scheduled for release tomorrow at 10:30 a.m. Washington time.

To contact the reporter on this story: Gavin Evans in Wellington, New Zealand at gavinevans@bloomberg.net

Last Updated: May 2, 2005 20:56 EDT