Oil Drops From Record in New York on Concern Demand May Decline

Crude oil dropped from a record in New York on concern that the rally in energy prices may reduce demand at a time of increasing supplies.

Oil futures climbed to a record $111 a barrel yesterday after the dollar fell below 100 yen for the first time since 1995 and dropped to an all-time low against the euro. U.S. crude stockpiles rose more than analysts forecast last week, while gasoline supplies jumped to the highest since 1993.

``Certainly it looks shaky, but it's been looking like that the past few days and kept rising,'' said Rowan Menzies, head of research for Commodity Warrants Australia Ltd. in Sydney. ``What could derail it is a slowdown'' in demand.

Crude oil for April delivery fell 56 cents, or 0.5 percent, to $109.77 a barrel at 8:47 a.m. Singapore time in after-hours trading on the New York Mercantile Exchange. Yesterday, futures rose 41 cents, or 0.4 percent, to settle at a record $110.33 a barrel. They earlier touched $111, the highest since trading began in 1983.

Brent crude for April settlement rose $1.27, or 1.2 percent, to $107.54 a barrel on London's ICE Futures Europe exchange, a record close. Futures reached an intraday record of $107.88 a barrel yesterday.

Stockpiles of crude and oil products in the developed economies of the Organization of Economic Cooperation and Development, or OECD, rose by 32.6 million barrels in January, reaching 2.62 billion barrels, the International Energy Agency said on March 11.

`Financial Bubble'

Those inventories alone could satisfy OECD demand for 52.9 days, compared with a five-year average of 51.8 days.

``We are waiting for the fundamentals of the physical market to pop this financial bubble; the only question is when it will occur,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gasoline supplies are at a 15-year high, which can't be ignored forever.''

Gasoline inventories in the U.S. rose 1.69 million barrels to 236 million barrels last week, the highest since 1993, the Energy Department said March 12 in its weekly report.

Crude oil stockpiles climbed 6.18 million barrels to 311.6 million barrels in the week ended March 7, the Energy Department said. A 1.68 million-barrel gain was forecast, according to the median of responses in a Bloomberg News survey.

Inventories of crude in the U.S. in the week ended March 7 were 1.9 percent above the five-year average for the period, the department said. Gasoline stockpiles were 11 percent above the five-year average.

Reduced Oil Use

U.S. crude-oil use typically falls at this time of year when refiners schedule repairs and upgrades as U.S. heating- fuel demand slows and before warmer weather spurs an increase in gasoline consumption. Refineries operated at 85 percent of capacity last week, down 0.9 percentage point from the week ended Feb. 29.

Refiners in Asia also schedule maintenance in the second quarter.

The tumbling dollar has drawn investors to the crude market as commodities become cheaper for buyers with other currencies.

``It's been financially driven,'' Commodity Warrants' Menzies said. ``When you think it's going to drop, the dollar weakens and takes it back up again.''

The U.S. currency headed for the fifth straight week of declines against the euro and the fourth week of losses versus the yen before an industry report today that may show U.S. consumer confidence fell this month to the lowest in 16 years, giving the Federal Reserve more reason to cut interest rates further to avert a recession.

The dollar traded at $1.5612 per euro at 8:19 a.m. in Singapore, after touching $1.5645 per euro yesterday, the weakest since the European currency's debut in 1999. The dollar traded at 100.68 yen, after touching 99.77 yen, the lowest level since October 1995.

Traders expect the U.S. Federal Reserve to lower its benchmark rate by 0.75 percentage point to 2.25 percent, based on futures prices. The Federal Open Market Committee's next regular meeting is March 18.