Oil Trades Little Changed After Rising With U.S. Equity Rally

May 15 (Bloomberg) -- Crude oil traded little changed after rising yesterday as U.S. equities gained and the dollar dropped against the euro, bolstering the appeal of energy futures as an alternative investment.

Oil advanced after the Standard & Poor’s 500 Index ended a three-day losing streak. The dollar declined as rising stock prices reduced the need for a refuge. Energy prices fell earlier yesterday when the International Energy Agency forecast the biggest contraction in world oil use since 1981.

“The stock market rally is inspiring buying of energy futures,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The market is more focused on inflation pressures and a possible economic rebound than on weak energy demand and plentiful supply.”

Crude oil for June delivery traded at $58.55 a barrel, down 7 cents, in after-hours electronic trading on the New York Mercantile Exchange at 8:43 a.m. in Sydney.

The contract rose 60 cents, or 1 percent, to $58.62 a barrel yesterday. Prices fell to $56.55 after the IEA report, a four-day low.

U.S. stocks advanced on a decline in bank borrowing and better-than-estimated earnings at CA Inc. The S&P 500 Index increased 1 percent to 893.07 and the Dow Jones Industrial Average climbed 0.6 percent to 8,331.32.

The dollar was little changed at $1.36 to the euro after declining 0.3 percent yesterday.

U.S. Inventories

Oil futures are little changed this week after falling May 13 as weaker-than expected retail data in the U.S. spooked investors. The same day, an Energy Department report showed U.S. crude-oil supplies fell 4.63 million barrels to 370.6 million in the week ended May 8, the first drop since February. The decline left inventories 18 percent higher than the five-year average for the week.

Total U.S. daily fuel demand averaged 18.2 million barrels in the four weeks ended May 8, down 7.9 percent from a year earlier, the Energy Department report showed. Gasoline demand averaged 9 million barrels in the same period, down 1.2 percent from a year earlier.

“The fundamentals of the oil market stink,” said Chip Hodge, who oversees a $9 billion natural-resource-company bond portfolio as managing director at MFC Global Investment Management in Boston. “Demand is weak, we have plenty of oil and there’s a great deal of spare capacity.”

IEA, OPEC

The IEA cut its 2009 demand estimate to 83.2 million barrels a day this year, down 3 percent from 2008. That’s 230,000 barrels a day lower than last month’s forecast. OPEC and the U.S. Energy Department lowered their 2009 outlooks this week.

“The slide in demand may be coming to an end, but it isn’t reversing,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “If OPEC doesn’t better adhere to the quotas, they won’t be able to whittle away surplus inventories.”

The 11 members of the Organization of Petroleum Exporting Countries bound by production targets implemented 77 percent of planned cuts of 4.2 million barrels a day in April, down from a revised 82 percent for March, a monthly report from the group showed this week.

OPEC ministers will meet May 28 in Vienna to review the group’s production quotas.

Brent crude oil for July settlement was untraded on London’s ICE Futures Europe exchange today. It rose 47 cents, or 0.8 percent, to $58.59 a barrel yesterday. The June contract, which expired yesterday, fell 65 cents, or 1.1 percent, to $56.69 a barrel.