Oil Falls on Concern Recession Will Curb Demand, OPEC Output

May 26 (Bloomberg) -- Crude oil fell on concerns that the global recession will prolong sluggish energy demand and after an OPEC official said the group may not alter production targets at its meeting this week.

A German survey of business confidence advanced less than economists expected as the worst business slowdown in a half century lingers in Europe, the U.S. and Asia. OPEC is unlikely to change anything after its May 28 discussions, and talk of overly high inventories is exaggerated, the official said yesterday, requesting anonymity as the decision isn’t final.

“We’ve got plenty of supplies and there’s nothing to suggest the economy is improving,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “OPEC doesn’t look like it will lend much support. The market is trying to figure out where it’s going next.”

Crude oil for July delivery fell 46 cents, or 0.8 percent, to $61.21 a barrel on the New York Mercantile Exchange at 9:18 a.m. Sydney time. The exchange will combine yesterday and today’s trading for settlement purposes because floor trading was shut yesterday in the U.S. for Memorial Day. Markets in London were closed for a bank holiday.

Germany’s Ifo institute in Munich said yesterday its business climate index, based on a survey of 7,000 executives, increased to 84.2 in May from 83.7 in April. Economists expected a gain to 85, the median of 39 forecasts in a Bloomberg News survey. The index reached a 26-year low of 82.2 in March.

‘Continuously’ Poor Data

“An overhang of inventories built up at sea and continuously poor economic data encourages selling because the rally looks unsustainable,” said Harry Tchilinguirian, BNP Paribas’s senior oil-market analyst in London.

Saudi Arabia, the largest producer in the Organization of Petroleum Exporting Countries, is “absolutely fine” with adherence to the group’s 4.2 million barrel-a-day production cut, Oil Minister Ali al-Naimi said May 24.

Saudi Arabia is producing more crude oil than its OPEC quota, according to data from the Joint Oil Data Initiative, citing figures submitted by the country.

OPEC, responsible for 40 percent of global crude supply, is likely to keep output quotas unchanged for a second time this year as recovering oil prices forestall the need for new cuts, according to a Bloomberg survey published on May 22.

At the last summit on March 15, the group decided to leave quotas unchanged and adhere to its earlier commitment to restrict supply.

Natural Gas Falls

Natural gas, heating oil and gasoline also fell in New York trading. Natural gas for June delivery fell 5 cents, or 1.4 percent, to $3.465 per million British thermal units.

The U.S. currency earlier rose against the euro after North Korea said it conducted a “successful” nuclear weapons test yesterday, spurring demand for the relative safety of the dollar and reducing the attractiveness of commodities as an inflation hedge.

The dollar had gained after North Korea announced the test, the second time Kim Jong Il’s regime detonated a nuclear device. The yen fell from near its highest level in more than two months, weakening to 94.87 per dollar by 4:50 p.m. in New York.

Brent crude for July settlement fell 57 cents, or 0.9 percent, to settle at $60.21 a barrel on London’s ICE Futures Europe exchange yesterday.