Oil drops on concerns of rising US stockpiles

Oil fell on concern that crude and fuel stockpiles are higher than average as the US Federal Reserve warned the economy may enter a recession.

US gasoline stockpiles remain 9.1 per cent above their five-year seasonal average even after a 4.53 million barrel decline reported yesterday by the Energy Department. Federal Reserve Chairman Ben S. Bernanke said yesterday that the US economy may contract in the first half of this year.

"Traders got excited about gasoline declining, but that can't give long-term support as we're heading into a market that will be structurally long gasoline,'' said Johannes Benigni, managing director of JBC Energy GmbH in Vienna. "Demand in the US is suffering.''

Crude oil for May delivery fell as much as $1.28, or 1.2 per cent, to $103.55 a barrel on the New York Mercantile Exchange. It traded at $104.38 at 1:37 pm London time.

Yesterday, oil rose $3.85, or 3.8 per cent, after the Energy Department said gasoline inventories rose the most since August. Supplies were forecast to decline 2.75 million barrels, according to a Bloomberg News survey.

Oil also declined as the euro fell against the dollar and yen on speculation the slowing US economy will drag down growth in Europe. The euro declined to $1.5586 at 10:25 am in London, dimming the attraction of dollar-priced commodities as a inflation hedge.

Oil futures rose to a record $111.80 a barrel on March 17 in New York as investors purchased commodities in response to the plunging US dollar.

Bernanke Speaks
Federal Reserve Chairman Ben S Bernanke, speaking to Congress, acknowledged for the first time that the economy may contract as homebuilding weakens further, unemployment rises and consumer spending slumps.

"The accurate picture is one of western recession becoming closer, and oil being supported by demand from India and China,'' said Robert Laughlin, a senior broker at MF Global Ltd. in London. ``It's only a matter of time before these economies slow down, and ultimately prices will suffer.''

The International Monetary Fund cut its 2008 global growth Forecast yesterday, citing the worst financial crisis in the U.S. since the 1930s. The world economy will expand 3.7 per cent in 2008, down from a projection of 4.1 per cent in January.

Brent crude for May settlement was at $102.98 a barrel, down 72 cents, on London's ICE Futures Europe exchange at 1:33 p.m. London time. The contract rose $3.58, or 3.6 per cent, yesterday to settle at $103.75 a barrel.

Total Refining
Total SA, Europe's largest oil refiner, said in an annual report on Thursday that European refining margins since the start of the year have been lower on average than in 2007.

US refineries operated at 82.4 per cent of capacity for the week ended March 28, up 0.2 per centage point from the week before, the report showed. Lower refinery margins, or crack spreads, last month reduced the incentive of refiners to process oil into products, including gasoline and diesel fuel.

Crude oil stockpiles rose 7.3 million barrels to 319.2 million barrels last week and are 1.8 per cent above their five- year average for this time of year, the Energy Department report also showed.