Crude Oil Falls From Highest in 31 Months; Heads for Eighth Monthly Gain

Oil dropped from a 31-month high in New York, trimming an unprecedented eighth monthly gain, as evidence the global economic recovery is faltering stoked speculation demand for crude will decline.

Futures fell as much as 0.4 percent after data showed South Korea’s industrial production and U.S. economic growth missed analysts’ forecasts. Reports today may show U.S. spending cooled and businesses grew at a slower pace in the world’s biggest crude-consuming nation. Asian oil demand growth will slow in the second half of the year as consumers “feel the pinch” of higher fuel prices, JPMorgan Chase & Co. said.

“You still have a U.S. economy that is extremely delicately poised in terms of growth,” said David Land, chief market analyst at CMC Markets Ltd. in Sydney. “If higher oil prices become the norm you reach the level where people will forgo spending.”

Crude for June delivery fell as much as 50 cents to $112.36 a barrel in electronic trading on the New York Mercantile Exchange. It was at $112.53 at 3:42 p.m. Sydney time. Yesterday, the contract climbed 10 cents to $112.86, the highest settlement since Sept. 22, 2008.

U.S. futures are up 5.4 percent this month, headed for an eighth monthly increase, the longest sequence of gains on record, as the armed conflict in Libya threatens to prolong supply cuts from Africa’s third-largest producer.

Oil is likely to extend its gains next week as the Federal Reserve’s pledge to keep interest rates in the world’s biggest economy near zero weakens the dollar, boosting the appeal of commodities priced in the currency, according to a Bloomberg News survey of 35 analysts conducted this week.

U.S. Economy

The U.S. economy expanded at a 1.8 percent annual rate from January through March, less than the 2 percent projected by economists in a Bloomberg News survey. A report today may show consumer spending climbed 0.5 percent in March, after a 0.7 percent gain in February, according to a separate survey. The Institute for Supply Management-Chicago Inc. may say its business barometer fell to 68.2 in April from 70.6 in March.

U.S. crude stockpiles rose 6.16 million barrels last week to 363.1 million barrels, the biggest gain since the period ended July 23, 2010, according to an Energy Department report April 27.

“Growth economies are slowing and the U.S. economy isn’t picking up,” Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, said by telephone today. “Inventories continue to rise.”

Asia Demand

Asia’s oil consumption growth will slow to 4 percent in the second half of 2011 compared with 5 percent in the first six months of the year, JPMorgan analysts, led by New York-based Lawrence Eagles, said in a report dated yesterday. Government efforts to shield buyers from gains in prices through subsidies won’t prevent the slowdown, the analysts said.

Brent crude for June settlement declined 22 cents, or 0.2 percent, to $124.80 a barrel on London’s ICE Futures Europe exchange. The contract yesterday slid 11 cents to $125.02.

The European benchmark traded at a premium of $12.24 a barrel to U.S. futures. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. The spread averaged 76 cents last year.

The U.K. was closed for a public holiday today to celebrate the wedding of Prince William and Kate Middleton.

OPEC Supply

The Organization of Petroleum Exporting Countries will cut exports by 1.2 percent in the four weeks to May 14 because of a seasonal decline in demand, tanker-tracker Oil Movements said.

OPEC, responsible for 40 percent of global supplies, will ship 22.75 million barrels a day in the four weeks to May 14, down from 23.03 million barrels a day in the period to April 16, the consultant said yesterday in a report. The data exclude Ecuador and Angola.

Unrest in the Middle East and North Africa has toppled leaders in Egypt and Tunisia and spread to Libya, Algeria, Bahrain, Iran, Oman, Yemen and Syria. Libya’s crude production, which averaged 1.6 million barrels a day last year, shrank to 390,000 barrels a day in March, according to a Bloomberg News survey of producers, analysts and companies.

Yemen’s main opposition movement said it may pull out of a plan brokered by Gulf Arab states for President Ali Abdullah Saleh to step down because his forces haven’t stopped killing protesters, while at least 14 people died after a blast ripped through a restaurant in downtown Marrakech, Morocco.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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