Crude Oil Falls Below $49 on Speculation U.S. Supplies Gained

April 1 (Bloomberg) -- Crude oil fell below $49 a barrel on speculation that a government report will show U.S. inventories rose from the highest level in more than 15 years.

Supplies probably climbed 3 million barrels last week, according to the median of 11 analyst responses in a Bloomberg News survey. Stockpiles surged 3.3 million barrels to 356.6 million in the week ended March 20, the highest since July 1993 and 13 percent more than average for this time of year, according to an Energy Department report on March 25.

“We are bracing ourselves for a build in crude stockpiles,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. The Washington-based American Petroleum Institute said after the close of trading yesterday that oil supplies rose by 3.28 million barrels to 357.8 million last week, the highest since the week ended July 16, 1993.

Crude oil for May delivery fell 84 cents, or 1.7 percent, to $48.82 a barrel at 9:15 a.m. Sydney time on the New York Mercantile Exchange. It has slumped 52 percent in the past year.

Oil rose $1.25, or 2.6 percent, yesterday to $49.66 a barrel as equities increased and a weaker dollar enhanced the appeal of commodities. Crude gained 11 percent in the first quarter after tumbling 56 percent in the previous three months. Last month’s 11 percent increase was the biggest on a monthly basis since a 12 percent jump last May.

“Commodities, especially oil, are very sensitive to the stock market right now,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The stock market bottoms before a recession ends, so any signs that the bottom has been reached are bullish for oil.”

U.S. Equities Rise

The Standard & Poor’s 500 Index increased 1.3 percent yesterday to 797.87. The Dow Jones Industrial Average rose 86.9, or 1.2 percent, to 7,608.92. The MSCI World Index of 23 developed markets rose 1.9 percent to 807.63. Last month’s gain of 7.5 percent was the biggest in almost six years.

“Rallies are going to be limited until there are signs that inventories are being absorbed or the economic picture brightens,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The Energy Department is scheduled to release its weekly supply update at 10:30 a.m. today in Washington. The report is forecast to show that inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, dropped.

The API report showed distillate stocks rose 1.78 million barrels, or 1.2 percent, to 144.5 million barrels, the highest since January 12, 2007. That’s “quite bearish, given that inventories are normally falling at this time of year,” Evans said. Distillate stocks were forecast to fall 1.15 million barrels in the Bloomberg survey.

Inventory Surplus

Crude oil supplies have increased as the Organization of Petroleum Exporting Countries agreed on March 15 to keep output quotas unchanged, saying members have to cut a further 800,000 barrels a day to comply with existing targets. OPEC is next scheduled to meet on May 28 in Vienna.

“Nobody is making a case that there isn’t a substantial inventory surplus,” Evans said. “What we are looking for is an inflection point. Once we see a downtrend in inventories, there will be evidence that the OPEC production cuts are doing their job.”

OPEC, the International Energy Agency and the U.S. Energy Department cut their 2009 forecast for oil demand this month. They expect consumption to slump by more than 1 million barrels a day this year.

“Until we see either a drop in supply or some positive developments on the demand side, prices are going to be under pressure,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut.

Brent crude oil for May settlement rose 61 cents, or 1.3 percent, yesterday to $48.60 a barrel on London’s ICE Futures Europe exchange.