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Oil Futures Decline Amid Projected U.S. Supply Increase

Oil dropped to an eight-week low on forecasts that U.S. supplies rose to the highest level for this time of year since 1990 and as equities fell on concern that the euro-region debt crisis will spread.

Futures declined 1.4 percent on speculation the Energy Department will report that U.S. inventories rose 2 million barrels to 364.4 million last week, the median estimate of analysts surveyed by Bloomberg News. The decline accelerated as stocks slid when Spanish and Italian bond yields surged.

“High crude inventories should keep a lid on prices,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. “We’ll continue to be focused on concerns about Europe’s debt crisis.”

Crude oil for May delivery fell $1.44 to $101.02 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 14. Prices are up 2.2 percent this year.

Brent oil for May settlement dropped $2.79, or 2.3 percent, to end the session at $119.88 a barrel on the London-based ICE Futures Europe exchange. It was the lowest settle since Feb. 17. The European benchmark contract’s premium to New York-traded West Texas Intermediate was $18.86, down from $20.21 at the close of trading yesterday.

U.S. gasoline supplies declined 1.38 million barrels last week, according to the median estimate of 10 analysts surveyed by Bloomberg News before the Energy Department report tomorrow. Inventories of distillates, a category that includes diesel and heating oil, slipped 250,000 barrels to 135.6 million, the survey showed.

API Report

The American Petroleum Institute will release separate 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 Energy Department for its weekly survey.

“We’re on the verge of wiping out all of our gains for 2012,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Increasing economic uncertainty and ample supplies are the primary reason for this move lower.”

Spain’s efforts to calm investors with 10 billion euros ($13 billion) of budget cuts in education and health failed to stem concern the nation will be the fourth euro member to need a bailout. The yield on Spain’s 10-year benchmark bond surged 20 basis points to 5.95 percent today as Economy Minister Luis de Guindos declined to rule out a rescue for Spain.

The yield on Italian 10-year bonds rose 23 basis points to 5.67 percent, increasing the spread over similar-maturity German bunds to more than 400 basis points for the first time since Feb. 16.

The Standard & Poor’s 500 Index dropped 1.6 percent, extending its longest slump since November, and the Dow Jones Industrial Average dropped 1.7 percent.

Chinese Imports

China’s net crude imports fell 6 percent in March and overseas purchases of all goods missed economists’ estimates, customs data showed, signaling lower demand.

“The market is bracing for inventory data tomorrow that’s likely to show a further build in crude stocks,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “People pay attention to the Chinese data. It’s unclear whether it means demand actually fell or imports are delayed.”

Chinese imports fell to 5.52 million barrels a day from February’s record 5.87 million, according to Bloomberg calculations based on data released today on the website of the Beijing-based General Administration of Customs.

The nation’s state-owned refiners plan “major” second- quarter maintenance, idling the equivalent of 12 percent of the country’s capacity, Oilchem.net reported in January.

Iranian Comments

Futures briefly rose as President Mahmoud Ahmadinejad, speaking days ahead of a new round of talks on Iran’s nuclear program, said his country can last for years without exporting crude. Iran and the five permanent members of the United Nations Security Council plus Germany are scheduled to hold talks on April 14 after a 15-month hiatus.

“The geopolitical concern that drove us higher earlier this year has dissipated because of the upcoming negotiations,” McGillian said. “There was some inflammatory rhetoric today from Iran but it had only a limited impact.”

Electronic trading volume on the Nymex was 541,119 contracts as of 3:14 p.m. in New York. Volume totaled 424,067 contracts yesterday, 34 percent below the three-month average. Open interest was 1.56 million.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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