[OIL FUTURES] Oil Falls for Second Day on Expectation of U.S. Inventory Build

Oil fell in New York for a second day on expectations that U.S. crude supplies probably gained for a fourth week on falling demand in the world's largest consumer.

Crude supplies likely advanced by 2.5 million barrels to 325.6 million barrels in the week ended May 9, according to the median of responses in a Bloomberg News survey. Gasoline and distillate inventories are also expected to build. Indonesia and Malaysia are considering reducing fuel subsidies as the cost of maintaining them have risen as oil has climbed to a record.

``A build would be looked at as bearish especially on the distillate side since the drawdown last week raised all the concerns about tightness,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``If more of the countries in Asia raise fuel product prices, reducing subsidies, then we may see demand in emerging markets slow down.''

Crude oil for June delivery fell as much as 53 cents, or 0.4 percent, to $123.70 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $123.85 at 10:25 a.m. Singapore time.

Yesterday, futures dropped $1.73, or 1.4 percent, to settle at $124.23 a barrel, after rising to $126.40, the highest since trading began in 1983.

Oil has surged 12 percent since May 1 to reach the record high, prompting concerns the price had climbed too far, too fast. Crude prices are more than double what they were last year.

Brent crude oil for June settlement was at $122.61 a barrel, down 30 cents, on London's ICE Futures Europe exchange at 10:27 a.m. Singapore time. The contract fell $2.49, or 2 percent, to $122.91 a barrel yesterday. It touched a record $125.90 on May 9.

Curve Flattens
There are signs that oil's rally may be slowing down as the premiums between the first and second month Nymex futures have narrowed. The June contract is now only 16 cents higher than July, versus 50 cents a week ago and 81 cents on April 29. June's price difference to December has closed up to $1.60 a barrel against $3.18 a barrel on May 6.

Brent futures became cheaper closest to delivery for the first time in about three months on May 9. The July contract is now at a 37 premium to June against a 27 cent discount on May 6.

``This shows that there is plenty of crude,'' said Purvin & Gertz's Shum. ``And if the inventory report shows builds across the board that may further fuel the profit-taking activity.''

Gasoline inventories probably climbed 550,000 barrels from 211.9 million barrels, according to the analysts. Supplies of distillate fuel, including diesel and heating oil, probably rose 1 million barrels from 105.7 million. All the analysts projected a gain.

Source: Bloomberg| by Christian Schmollinger

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