Oil Trades Near Eight-Week Low on Rising U.S. Inventories

Oil traded near its lowest price in almost two months in New York after an industry report showed stockpiles rose for a third week in the U.S., the world’s biggest consumer of crude.

Futures swung between gains and losses after dropping yesterday for a second day. U.S. inventories increased by 6.6 million barrels last week, according to the American Petroleum Institute. An Energy Department report today may show they rose by 2 million to the highest level for this time of year since 1990, according to a Bloomberg survey. The U.S. cut its price forecast for domestic and imported grades used by its refiners because of rising output in Canada and North Dakota.

“The fact there is a surplus in the U.S. is borne out by yesterday’s API inventory data,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. He predicts crude will average $104 a barrel this quarter.

Oil for May delivery was at $101.39 a barrel, up 37 cents, in electronic trading on the New York Mercantile Exchange at 9:49 a.m. in London. It fell earlier as much as 0.2 percent and gained 0.6 percent. The contract yesterday declined 1.4 percent, to $101.02, the lowest close since Feb. 14.

Brent oil for May settlement fell 27 cents to $119.61 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 $18.24. The spread yesterday was $18.86 after shrinking 6.7 percent, the most since Feb. 20.

OPEC’s Basket

OPEC’s basket of crude dropped below $120 a barrel for the first time since February, according to data from the producer group. The basket, a weighted average price of the main crude grades produced by Organization of Petroleum Exporting Countries, was at $119.38 a barrel yesterday, data on its website showed today. That was the least since Feb. 21, when the price was $119.19.

Oil in New York may be halting this week’s decline as a technical indicator shows futures have fallen too quickly and that further losses may not be sustainable, according to data compiled by Bloomberg. On the daily chart, stochastic oscillators are below 30, and today’s reading is the lowest since June last year. Investors tend to buy when prices are considered oversold.

U.S. crude stockpiles are forecast to climb to 364.4 million barrels in the seven days ended April 6, according to the median estimate of 10 analysts surveyed by Bloomberg News. Gasoline supplies are projected to decline by 1.38 million barrels, while the API data showed a gain of 1.18 million barrels. Inventories of distillates, a category that includes diesel and heating oil, may drop 250,000 barrels, compared with a decline of 476,000 barrels in the API report.

Stockpile Data

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The U.S. government requires that reports be filed with the Energy Department for its weekly survey.

U.S. gasoline demand declined 0.8 percent last week from the prior seven days and consumption slipped below year-earlier levels for the 32nd consecutive week, MasterCard Inc. said in its SpendingPulse report yesterday. Drivers bought 8.8 million barrels a day of the fuel in the seven days ended April 6, down from 8.87 million the prior week, the report showed.

The average cost of crude used by U.S. refiners will be $112.19 a barrel in 2012, down 2.1 percent from last month’s projection of $114.58, the Energy Department said yesterday in its monthly Short-Term Energy Outlook. Rising North American production is the primary reason for the revision, said Tancred Lidderdale, an economist with the department’s Energy Information Administration, who helped write the report.

Iran Talks

Oil has climbed 2.4 percent this year amid speculation that a dispute between Iran and Western nations over the Persian Gulf state’s nuclear program will disrupt supplies from the Middle East. The U.S. and its European allies will press Iran for action to curb its nuclear research when talks resume this week after a 15-month hiatus. Negotiations between Iran and the five permanent United Nations Security Council members plus Germany will start April 14 in Istanbul.

The Islamic republic has threatened to close the Strait of Hormuz, a transit route for a fifth of the world’s crude, in response to a U.S. and European embargo.

Concern that the euro-region debt crisis will spread, curbing economic growth, also weighed on oil prices yesterday.

Spanish bonds tumbled and the yield on 10-year government debt climbed to the highest since Dec. 12. Economy Minister Luis de Guindos declined to rule out a rescue for the country, and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need more capital if the economy weakens more than expected. Italian bonds also fell.

“People are starting to question the global recovery,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity markets newsletter in Sydney.

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