Oil Drops After Bigger-Than-Forecast Increase in Crude Supplies

May 27 (Bloomberg) -- Oil declined in New York after a government report showed a bigger-than-forecast increase in crude inventories in the U.S., the biggest energy consumer.

Oil gave up some of yesterday’s 4 percent gain after an Energy Department report said crude stockpiles rose by 2.46 million barrels to 365.1 million last week. Supplies were forecast to climb by 250,000 barrels, according to a Bloomberg survey of 17 analysts. Concern about Europe and the future of its single currency spurred a 20 percent drop in oil prices between May 3 and May 25.

“The Department of Energy data was mixed,” Toby Hassall, commodities analyst at CWA Global Markets Pty in Sydney, said by telephone. “The crude number was greater than expected. There is a wave of risk aversion that has flooded the market, stemming from Europe’s problems.”

Crude oil for July delivery dropped 74 cents, or 1 percent, to $70.77 a barrel, in electronic trading on the New York Mercantile Exchange at 8:33 a.m. Sydney time. Yesterday, the contract rose $2.76 to settle at $71.51, the biggest one-day increase since Sept. 30. Futures closed at their highest level since May 14.

Oil rose yesterday after U.S. government reports showed gains in fuel consumption and orders for durable goods. Total fuel demand climbed 0.6 percent to 19.7 million barrels a day in the week ended May 21, the Energy Department said.

“We were due for a bounce given the magnitude of decline over the last few weeks,” CWA’s Hassall said. “Volatility remains elevated.”

Fuel Supplies

Gasoline supplies fell 203,000 barrels to 221.6 million barrels, their third consecutive decline, the Energy Department report showed. Stockpiles were forecast to rise 300,000 barrels, according to a Bloomberg News survey.

Inventories of distillate fuel, a category that includes heating oil and diesel, declined 267,000 barrels according to the Energy Department.

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is delivered, slipped 0.9 percent to 37.6 million barrels. It was the first decline in 10 weeks. Stockpiles in the week ended May 14 were at the highest level since the Energy Department started keeping records at the storage hub in 2004.

The Organization for Economic Cooperation and Development forecast yesterday that the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006 as growth in emerging economies outpaces debt-burdened developed countries.

Brent crude oil for July settlement increased $2.19, or 3.2 percent, to $71.74 on the London-based ICE Futures Europe exchange yesterday. It was the first gain in 10 days.