Oil Falls on Speculation Slow Recovery Will Limit Energy Demand

April 27 (Bloomberg) -- Crude oil fell for the first time in five days in New York on speculation a slow recovery from the global recession may limit demand.

The U.S. economy, the world’s largest oil consumer, will continue to contract “for some time,” Lawrence Summers, director of the White House National Economic Council, said yesterday. Increased output by non-OPEC producers has left the market oversupplied by about 720,000 barrels a day, said Algerian Oil Minister Chakib Khelil.

“It’s difficult to see a really sustained rally in oil,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “There are so many downside risks to the global economy.”

Crude oil for June delivery fell as much as 80 cents, or 1.6 percent, to $50.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $50.78 at 7:54 a.m. in Singapore.

The contract jumped 3.9 percent to $51.55 a barrel on April 24 as a weaker dollar and rising equity prices boosted investment in commodities. Oil gained $5.67 in its first four- session rally in a month, trimming the weekly decline to 1.8 percent.

Crude prices need to be at $70 a barrel to ensure continued investment in the industry, Abdalla el-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said in Algiers yesterday. Oil may reach $60 a barrel by the end of 2009, Khelil said.

Output Review

OPEC pumps about 40 percent of the world’s oil. The group agreed last year to cut output by 4.2 million barrels and will review production again when it meets May 28.

Saudi Arabia, the biggest producer, is under pressure from the rest of OPEC to cut output further, the Kingdom’s former oil minister Sheikh Ahmad Zaki Yamani said in Cairo yesterday.

“I can’t see them cutting,” Commodity Warrants’ Hassall said. “They’ve played their cards pretty well so far. They’ve actually been fairly successful if you look at where prices are, considering the global macro environment.”

Brent crude for June settlement fell 52 cents, or 1 percent, to $51.15 a barrel on London’s ICE Futures Europe exchange. It climbed $1.56, or 3.1 percent, to $51.67 a barrel on April 24.

The world’s 20 largest nations will spend $820 billion to shore up their economies this year and $660 billion in 2010, the International Monetary Fund said yesterday. The biggest effect from the measures may come toward the end of this year, an IMF official told reporters on condition of anonymity.

Equity Link

Expectations of that recovery have been reflected in equity markets, which have in-turn supported crude prices, Hassall said. While physical demand remains weak, oil prices may climb “toward $55” a barrel if stock prices can extend their gains.

“But it’s a bit of a stretch given we have very high levels of inventory, which are still rising,” he said.

U.S. oil stockpiles rose for a seventh week to 370.6 million barrels on April 17, the highest since September 1990.

Hedge-fund managers and other large speculators are betting on declining New York oil futures for the first time in six weeks, according to U.S. Commodity Futures Trading Commission data.

Speculative net-short positions, or bets prices will fall, outnumbered long positions by 14,605 contracts on April 21, the Washington-based commission said April 24. A week earlier, traders were net-long 4,962 contracts.