Crude Oil Drops From Record on Speculation Demand May Decline

Crude oil dropped from a record on concern that prices have risen too high, too fast at a time of rising inventories and expectations energy demand may weaken in the U.S.

Oil futures fell today, following a report this week that showed U.S. crude inventories rose more than analysts forecast. Prices had gained 26 percent since Feb. 6, sparked by declines in the dollar's value against the euro and the yen.

``The market is overbought and it is not related to the real fundamentals anymore,'' said Andy Sommer, an analyst with HSH Nordbank in Hamburg. ``The weak dollar has been driving the market in the last couple of weeks.''

Crude oil for April delivery fell as much as 94 cents, or 0.9 percent, to $109.39 a barrel in electronic trading on the New York Mercantile Exchange. It was at $109.66 at 12:55 p.m. London time.

Futures yesterday settled at a record $110.33 a barrel after reaching $111, the highest since trading began in 1983. The dollar yesterday fell below 100 yen for the first time since 1995 and dropped to an all-time low against the euro. The tumbling dollar draws investors to oil as commodities become cheaper for buyers using other currencies.

New York crude's relative strength index, a measure of how rapidly prices have advanced or dropped during the past 14 days, was at 72.9 today. Readings above 70 indicate a price may be poised to fall, and readings below 30 indicate it may be poised to rise.

Brent crude for April settlement fell as much as 90 cents, or 0.8 percent, to $106.64 a barrel on London's ICE Futures Europe exchange. It was at $107.7 at 12:56 a.m. London time. Brent yesterday closed at an all-time high of $107.54 a barrel after reaching an intraday record of $107.88.

Brent Expiry

The April Brent contract expires today. The more-active May contract was down 41 cents at $106.00 a barrel.

U.S. crude oil stockpiles climbed 6.18 million barrels last week to 311.6 million barrels, a U.S. government report showed this week, versus an average analyst forecast of 1.68 million barrels. Rising inventories has increased speculation that demand for fuel is falling in the U.S. as the economy slows.

``The dollar dominates everything right now,'' said Andrey Kryuchenkov, an analyst at Sucden (U.K.) Ltd. in London. ``When we had very bearish stocks from the Energy Information Department, within one hour the price had come back again.''

The dollar dropped as low as $1.5651 per euro earlier today, the weakest since the European currency's debut in 1999. It was last at $1.5579 per euro.

``Slowing U.S. growth will dampen demand for energy from the world's largest oil consumer,'' said Sucden's Kryuchenkov. ``This will put some pressure on oil prices.''

Gasoline Demand

U.S. gasoline demand increased by about 0.7 percent, or 60,000 barrels a day, last week, according to data from the Department of Energy. Demand remained below levels recorded at the same time last year.

Sixteen of 37 analysts surveyed by Bloomberg News, or 43 percent, said prices will drop next week. Thirteen of the respondents said oil will rise and eight forecast little change. Last week, 45 percent said oil would decline.

OPEC cut its production forecast for countries that are not members of the organization, citing lower output from Western Europe, North America and Mexico.

Non-OPEC production will run at a rate of 50.37 million barrels a day this year, the Organization of Petroleum Exporting Countries said today in a monthly report, cutting its previous projection by 160,000 barrels a day. OPEC left its world demand forecast little changed.

Investors are buying oil to ``hedge against inflation and the declining value of the U.S. dollar,'' OPEC said. ``While financial markets dynamics lifted prices to record level, fundamentals indicate a market which is currently well balanced and expected to soften over the comings months.''