Oil Drops a Second Day on Concern Prices Near 9-Month High May Curb Demand

Oil dropped for a second day in New York on speculation rising U.S. stockpiles signal easing fuel demand as crude trades near the highest price in nine months.

West Texas Intermediate futures slid as much as 0.7 percent after falling for the first time in eight days yesterday. U.S. supplies probably rose 1.1 million barrels last week, a Bloomberg News survey showed before a report from the Energy Department tomorrow. Consumer demand for oil may deteriorate after prices for London-traded Brent crude breached a record high in euros and pounds, according to Morgan Stanley.

“U.S. demand is particularly weak,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty, said by telephone today from Sydney. “West Texas and Brent contracts hit technical levels and so we saw some pullback. There’s also concerns broadly in the market that oil prices at these levels will lead to demand destruction.”

Oil for April delivery fell as much 72 cents to $107.84 a barrel in electronic trading on the New York Mercantile Exchange and was at $108.46 a barrel at 4 p.m. Singapore time. The contract yesterday slid 1.1 percent to $108.56, snapping the longest winning streak since January 2010. Prices rose 6.3 percent last week to the highest since May 3 and are up 12 percent in the past year.

Brent oil for April settlement declined 32 cents, or 0.3 percent, to $123.85 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $15.39. It reached a record of $27.88 on Oct. 14.

Relative Strength

New York crude has fallen since Feb. 24, when the 14-day relative strength index for front-month contracts climbed to 76.9, according to data compiled by Bloomberg. A reading above 70 indicates futures have risen too quickly and further gains probably aren’t sustainable. Today’s 14-day RSI was at about 70.

Brent, the benchmark for more than half the world’s crude, is also approaching an all-time high in Indian rupees and Brazilian reals. There may be no demand growth for oil this year as prices at current levels curb use in economies that are already slowing, Hussein Allidina, head of commodities research at Morgan Stanley in New York, said in a telephone interview yesterday.

U.S. crude inventories probably rose for a fifth week in six and climbed to the highest level in five months in the period ended Feb. 24, according to the median of eight analyst estimates in the Bloomberg News survey. Gasoline stockpiles probably increased 250,000 barrels while distillate supplies, a category that includes diesel and heating oil, may have declined 500,000 barrels, the survey showed.

The industry-funded American Petroleum Institute will release its inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the DOE for its weekly survey.

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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