Oil Falls a Second Day on Speculation Demand Will Stay Weak

March 30 (Bloomberg) -- Crude oil fell for a second day in New York on speculation high global stockpiles will persist as the world economy remains in recession.

Factory output in Japan, the world’s third-largest oil consumer, dropped for a fifth month in January, its longest losing streak since 2001, according to a Trade Ministry report today. Global demand remains weak and oil is unlikely to reach $60 this year, Qatar’s Oil Minister Abdullah Bin Hamad Al- Attiyah said.

“There’s nothing really out there to suggest that demand has dramatically improved,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “The dollar will be a key factor. If the dollar continues to head north we may see oil come under pressure.”

Crude oil for May delivery fell as much as $1.26, or 2.4 percent, to $51.12 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $51.59 at 8:33 a.m. Singapore time.

The contract declined 3.6 percent to $52.38 a barrel on March 27 as signs of a deepening recession in Europe depressed equity markets and lifted the dollar, reducing the appeal of commodities. Oil gained 0.6 percent last week.

New York oil futures gained 16 percent this month as a slump in the U.S. dollar made commodities cheaper for buyers spending other currencies and increased investor demand for a hedge against inflation.

Rising Inventories

In the same period, oil stockpiles in the U.S., the world’s largest consumer, rose 1.7 percent. Inventories reached 356.6 million barrels on March 20, the highest in more than 15 years and 13 percent more than average for the time of year, according to Energy Department records.

Recent oil price gains were driven by the dollar, not improved supply and demand, Al-Attiyah said in an interview in Kuwait yesterday.

“The international economy is still very weak,” he said. “The crisis has not reached the bottom so we have to be very careful.”

The U.S. dollar climbed to $1.3204 against the euro today, the highest since March 19. It last traded at $1.3263, from $1.3292 late in New York on March 27.

Brent crude oil for May settlement fell as much as 98 cents, or 1.9 percent, to $51 a barrel on London’s ICE Futures Europe exchange, and was trading at $51.25 at 8:28 a.m. in Singapore. It dropped 2.8 percent to $51.98 on March 27.

Prices ‘Fair’

Current prices are “reasonably fair” and there is no indication the market is expecting another round of output cuts by the Organization of Petroleum Exporting Countries, Commodity Warrants’ Hassall said.

OPEC produces about 40 percent of the world’s oil and has agreed to cut daily output by 4.2 million barrels since September. It left targets unchanged this month and will review them again May 28.

The cuts, 79 percent achieved to date, have been “very important” in helping stabilize oil prices, OPEC president Jose Maria Botelho de Vasconcelos said in Brazzaville on March 28. Member states must get to full compliance and further cuts may yet be necessary, he told a conference of African oil producers.