Oil Trades Near $43 After Falling on Increased U.S. Inventories

March 12 (Bloomberg) -- Crude oil traded near $43 a barrel in New York after falling 7.4 percent yesterday as a U.S. government report showed a bigger-than-expected inventory gain and a drop in fuel consumption to a two-month low.

Supplies increased 749,000 barrels to 351.3 million barrels last week, the Energy Department said yesterday. Stockpiles were forecast to rise by 250,000 barrels, according to the median of analyst estimates in a Bloomberg News survey. Refineries ran at 82.7 percent of capacity, down from 85 percent a year earlier, as demand slipped.

“The bottom line is that demand is still lousy,” said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. “With all the excess refining capacity we have, there will be no problem increasing output to meet any increase in fuel demand.”

Crude oil for April delivery rose 47 cents to $42.80 a barrel at 9:37 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, April futures fell $3.38 to settle at $42.33 a barrel, the lowest since March 3. Prices are down 5.1 percent so far this year.

U.S. fuel consumption dropped 3.5 percent last week to 18.9 million barrels a day, the lowest since the week ended Jan. 9. Total daily fuel demand averaged over the past four weeks was 19.3 million barrels, down 2.1 percent from a year earlier.

World oil use will average 84.27 million barrels a day this year, a drop of 1.38 million barrels from 2008, the department said in a report earlier this week.

China’s Imports

Gasoline inventories declined 2.99 million barrels to 212.5 million barrels in the week ended March 6, the department said. Stockpiles were forecast to fall by 1 million barrels, according to the median of analyst estimates in the Bloomberg survey.

Distillate stockpiles rose 2.1 million barrels to 145.4 million, the report showed. A 200,000-barrel increase was forecast.

China, the world’s second-biggest energy consumer, cut net crude-oil imports to the lowest in at least two years in February, according to data released by the customs bureau in Beijing yesterday.

Net shipments dropped for a second month to 11.12 million metric tons, about 2.9 million barrels a day, as imports fell the most since at least 2006.

German manufacturing orders collapsed in January as the recession cut exports. Orders plunged 38 percent from a year earlier, the biggest drop since data for a reunified Germany started in 1991, the Economy Ministry in Berlin said yesterday.

Russian Supplies

Russia exported oil at a higher rate than the 2008 average during the two months after the Organization of Petroleum Exporting Countries’ December decision to curb supply, according to Russian Energy Ministry CDU TEK statistics.

Deputy Prime Minister Igor Sechin told journalists at OPEC’s Dec. 17 meeting in Oran, Algeria, that Russian exports may fall by as much as 320,000 barrels a day in 2009, should prices remain low.

OPEC has reduced daily production targets by 4.2 million barrels since September. Ministers will meet in Vienna on March 15 to discuss whether to make further cuts. Algerian Energy Minister Chakib Khelil said the group is likely to reduce output again at this weekend’s meeting.

“The market expects a reduction and we have to reduce, otherwise prices will fall,” he said in Algiers yesterday. “There will be a debate in Vienna, but I think the consensus will be to seek stability of prices through a reduction.”

Better Compliance

Algeria’s call for further cuts differs from the view of Qatari Oil Minister Abdullah bin Hamad al-Attiyah, who said in an interview in Doha this week that “we cannot discuss another cut until we see the compliance at 100 percent,” for previous pledged reductions.

The 11 OPEC members with quotas, all except Iraq, produced 25.39 million barrels a day in February, down from 29.22 million barrels a day in September, according to a Bloomberg News survey of oil companies, producers and analysts. The group agreed to pump 24.845 million barrels a day starting Jan. 1.

“They will probably end up with a statement that encourages people to adhere to their quotas and say that they will monitor the market closely,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “Their major concern is that inventories will start to pile up because of refinery maintenance and the recession.”

U.S. Energy Secretary Steven Chu said he’ll caution OPEC ministers about higher oil prices when he talks with them before their next meeting.

“If the cost of petroleum increases, that will create a huge strain on the ability of the world’s economy to recover,” Chu said after testifying at a Senate hearing in Washington yesterday.