Oil Little Changed as U.S. Dollar Gains, Equity Market Declines

April 21 (Bloomberg) -- Oil was little changed as U.S. equity markets weakened, a stronger dollar reduced the appeal of commodities and on speculation supplies will rise as the recession reduces demand.

Oil dropped yesterday as U.S. stocks tumbled, pulled lower by the biggest drop in financial shares in three months, and as the dollar rose to a one-month high versus the euro, making crude less attractive as a currency and inflation hedge.

“Oil is trading lower after receiving pressure from the Dow closing the session down almost 300 points,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “With the dollar looking to go higher, more negative news about the economy, and bad banks, oil could easily stay below $50 and even to the low $40 range.”

Crude oil for May delivery fell 17 cents to $45.71 a barrel at 9:15 a.m. Sydney time on the New York Mercantile Exchange.

In trading yesterday, crude futures fell $4.45, or 8.8 percent, to $45.88 a barrel, the lowest settlement since March 11. It was the biggest drop since March 2. Prices are up 2.9 percent this year. The May contract expires tomorrow.

The more-active June futures climbed 12 cents to $48.63 in early trading. The futures dropped $3.96, or 7.5 percent, to $48.51 a barrel yesterday.

An Energy Department report this week is forecast to show that crude inventories climbed from the highest level since September 1990.

Strong Dollar

“The strength of the dollar has prompted a selling in the oil market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We repeatedly shift from concentrating on the fundamentals of high inventories and low demand on one hand and hopes of recovery later this year. The fundamental picture has reasserted itself today.”

The dollar strengthened as European Central Bank policy makers disagreed on the measures needed to combat the recession. The U.S. currency rose to $1.2922 from $1.3044 in New York on April 17.

Stocks declined on concern that credit losses are growing. The Standard & Poor’s 500 Index dropped 4.3 percent to 832.39. The Dow Jones Industrial Average fell 289.60 points to 7,841.73.

“The strong dollar and weak stock market are key,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “Oil is still locked in a trading range and I doubt that today’s headlines will be enough to break out of it.”

Oil prices around $50 a barrel will help the economy recover, according to Mohamed al-Hamli, the oil minister of the United Arab Emirates. The Organization of Petroleum Exporting Countries is concerned about oil demand uncertainty, and maintaining crude prices at reasonable levels is vital, he said.

Stockpiles Rise

Crude-oil stockpiles rose 2.4 million barrels last week, according to the median of 10 estimates by analysts in a Bloomberg News survey. The Energy Department is scheduled to release its weekly report April 22 at 10:30 a.m. in Washington.

Total daily fuel demand averaged in the four weeks ended April 10 was 18.7 million barrels, down 5.2 percent from a year earlier, the Energy Department reported on April 15. Crude supplies climbed 5.67 million barrels to 366.7 million, last week’s report showed.

“The implied demand numbers last week weren’t very good,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “There will be good weeks and bad weeks. Even if we have a string of good weeks, that doesn’t mean the market is finished with its correction.”

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report last week. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

‘Dismal’ Numbers

“The DOE statistics last week were dismal,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Demand is dramatically lower and inventories are the highest since September 1990. These are not subtle bearish signals.”

The International Energy Agency, the Organization of Petroleum Exporting Countries and the U.S. Energy Department lowered their 2009 global oil consumption forecasts this month.

“What we have in 2009 is a year of two halves,” Christof Ruehl, chief economist of BP Plc, said yesterday in an interview in Dubai. “The first half was pretty terrible and the second half is likely to be stabilizing in the sense that the global contraction is likely to stabilize.”

Goldman Sachs Group Inc. analysts predict oil prices will decline to $45 a barrel because of weak demand and rising inventories before recovering to $65 by the end of the year.

“This weakness is being driven by deteriorating oil demand,” Goldman analysts David Greely in New York and Jeffrey Currie in London said in a report dated April 17. “In the U.S., oil demand has fallen to its lowest level since October of last year, while implied oil demand in China and the non-OECD countries fell back to 2007 levels in February.”