March 17 (Bloomberg) -- Crude oil fell after OPEC lowered its forecast for world demand amid signs that surging U.S. supplies are sufficient to make up for a possible disruption.

Demand will average 84.5 million barrels a day this year, the Organization of Petroleum Exporting Countries said today in a monthly report. That's 100,000 barrels a day less than was forecast a month ago. U.S. inventories jumped 6 percent to 339.9 million barrels in the past five weeks, an Energy Department report on March 15 showed.

``The fear that demand would accelerate later this year is fading,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There will come a point when there will be a shortage of storage. We are getting closer to the point where you can't ignore the fundamentals, and we'll then see prices fall below $60.''

Crude oil for April delivery fell 81 cents, or 1.3 percent, to close at $62.77 a barrel on the New York Mercantile Exchange. Futures, which rose 4.7 percent this week, have increased 11 percent in the past year.

Stockpiles may rise further in the weeks ahead because spot prices are cheaper than futures for oil delivered later in the year, a price difference traders call ``contango.'' Crude oil for May delivery fell 90 cents, or 1.4 percent, to close at $64.20 a barrel, a $1.43 premium over the April contract. The June contract slipped 90 cents, or 1.4 percent, to close at $65.06 a barrel.

``In a contango market you are going to build inventories,'' said Mark Routt, oil analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``You are being paid to take delivery now.''

OPEC Output

OPEC, which produces about 40 percent of the world's oil, agreed last week to leave its production quotas unchanged at a meeting in Vienna because prices were too high to justify supply cuts. Some members had expressed concern a seasonal dip in world demand during the second quarter would lower prices.

OPEC members increased output by 160,400 barrels a day last month to 29.71 million barrels a day, according to the average of several ``secondary sources'' monitored by OPEC, including news agencies and independent analysts, the monthly report said. OPEC production reached a 25-year high of 30.54 million barrels a day in October 2004, according to Bloomberg estimates.

Prices have tripled the past four years as demand growth coincided with threats to shipments from Nigeria, Iran, Iraq and other exporters. Nigeria has halted almost a quarter of output because of rebel attacks. Oil surged last month on concern that Iranian shipments would be cut because of a dispute over the country's nuclear research.

Iran's Nuclear Program

On March 8, the UN's nuclear watchdog, the International Atomic Energy Agency, confirmed the referral of Iran to the Security Council after three years of UN inspections that failed to declare Iran's atomic work peaceful. Iran says its nuclear program is for civilian energy-generating purposes. The U.S. says Iran is planning to build an atomic bomb, a violation of the nuclear Non-Proliferation Treaty.

``The rise in prices has been driven by concern about future supply, not the present situation,'' Routt said.

Oil prices may trade in a narrow range next week as high inventories temper geopolitical concerns, a Bloomberg News survey shows. Sixteen of 42 analysts, traders and brokers, or 38 percent, said prices will be little changed next week. Fifteen forecast a drop and 11 expected an increase. Forty-five percent of respondents predicted a decline a week earlier.

Brent crude oil for May settlement declined 95 cents, or 1.5 percent, to close at $63.26 a barrel on the London-based ICE Futures exchange.

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

Last Updated: March 17, 2006 15:28 EST