Crude Oil Falls as Traders Sell Contracts to Lock in Gains

June 3 (Bloomberg) -- Crude oil fell in New York as traders sold contracts to lock in gains after prices reached a seven- month high yesterday as investors sought to purchase commodities as a hedge against inflation.

Oil had gained late in trading yesterday as the dollar declined on speculation record U.S. borrowing will undermine the currency. Investors who made bets that prices will rise, or so- called long positions, need to sell their contracts to record profits. From May 15, crude surged 23 percent to yesterday’s intraday high of $69.05 a barrel, the most since Nov. 5.

“We’ve had quite a steep rally considering we haven’t had a huge amount of evidence that a recovery is taking place,” said Toby Hassall, an analyst with Commodity Warrants Australia in Sydney. “The fact that the dollar has declined so sharply has been supportive. But if you look back at fuel demand we’ve seen a fall in global demand.”

Crude oil for July delivery fell as much as 57 cents, or 0.8 percent, to $67.98 a barrel on the New York Mercantile Exchange. It was at $68.15 a barrel at 8:03 a.m. Singapore time. The contract fell 3 cents yesterday to settle at $68.55 a barrel. Prices are up 53 percent this year.

The euro gained for a fourth day versus the dollar yesterday as the Russian government said emerging-market leaders may discuss the idea of a supranational currency at a meeting this month. The dollar fell 1.2 percent to $1.4329 per euro, earlier touching $1.4331, the weakest level since Dec. 29.

Demand, Stockpiles

U.S. fuel demand over the past 4 weeks averaged 18.3 million barrels a day, the Department of Energy said on May 27. That’s down 11 percent from the same period last year.

The International Energy Agency on May 14 forecast that this year will see the biggest contraction in world oil use since 1981. On the previous day, the Organization for Petroleum Exporting Countries cut their outlook for 2009 demand for a ninth straight month.

U.S. crude-oil stockpiles probably dropped 1.5 million barrels in the week ended May 29 from 363.1 million the previous week, according to the median of 15 estimates by analysts before an Energy Department report tomorrow. Inventories are likely to have fallen as refiners increased operations to meet demand during the summer driving season.

Stockpiles of gasoline probably rose 650,000 barrels from 203.4 million the prior week, according to the survey. Supplies of distillate fuel, a category that includes diesel and heating oil, increased 900,000 barrels from 148.4 million.

API Data

Crude oil inventories fell 828,000 barrels to 363.9 million last week, the industry-funded American Petroleum Institute said late yesterday.

Oil-supply totals from the API and DOE moved in the same direction 76 percent of the time over the past four years, according to data compiled by Bloomberg.

API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Brent crude for July fell 42 cents, or 0.6 percent, to $67.75 a barrel at 8:14 a.m. in Singapore. Yesterday, it rose 20 cents, or 0.3 percent, to $68.17 a barrel on London’s ICE Futures Europe exchange, the highest settlement since Oct. 21.