Crude Dropped Again Due To Weak Demand

Light, sweet crude for April delivery settled $1.36, or 2.9%, lower at $45.71 a barrel on the New York Mercantile Exchange. April Brent crude on the ICE futures exchange settled down 17 cents, or 0.4%, at $43.96 a barrel.

Oil prices have risen 35% in the last month, but the rally has stalled at around $48 a barrel, above which crude futures have settled only twice this year.

Futures have rebounded on early signs that supplies are beginning to tighten, but the possibility of further declines in demand threaten to undo recent progress in balancing the market.

The Department of Energy said Wednesday it now predicts that global oil demand will fall by 1.6% this year, to a 27-year low. The department's February forecast had anticipated a 1.4% decline in 2009.

"The market was a little overdone," said Mike Zarembski, senior commodities analyst at optionsXpress, a brokerage in Chicago. "The $50 level is definitely going to be hard to penetrate given the still overall weak demand."

With oil demand still on the decline, and inventories still close to their recent peak, market participants are still unsure whether supplies have truly maxed out.

U.S. oil inventory data, due later Tuesday and on Wednesday, are seen providing some clarity. Stockpiles have fallen in two of the last three weeks after nearly two months of continuous gains.

Analysts gave an average forecast for a 200,000-barrel gain in the week ended March 6, according to a Dow Jones survey. Gasoline stockpiles are seen falling by 400,000 barrels, while distillates, including heating oil and diesel, are expected to rise by 100,000 barrels. Refinery utilization is seen unchanged at 83.1%.

"Until we see meaningful draws on inventories, I don't think you'll see this market rally," said Adam Klopfenstein, senior market strategist at Lind-Waldock in Chicago.

The Organization of Petroleum Exporting Countries is expected to address lingering uncertainty about supply at its meeting on March 15. The group could cut production by another 1 million barrels a day, enough "to be seen to be taking further decisive action in the face of the mounting negative macroeconomic news," wrote Greg Priddy, an analyst with Eurasia Group, a consultancy. OPEC agreed to cut output by 4.2 million barrels a day in late 2008, with members believed to be complying at a rate of up to 90%.

Source: FWN Financial News

Author: Ksenia Kochneva