Oil Falls on U.S. Supply Gain


"Crude oil fell after U.S. crude stockpiles increased more than forecast . . ."

Crude oil fell after U.S. crude stockpiles increased more than forecast and government reports signaled that the U.S. recession will deepen, curbing demand.

Inventories climbed 1.9% to 338.8 million barrels last week, the highest since August 2007, an Energy Department report showed yesterday. Crude oil for March delivery fell $1.16, or 2.8%, to $41 a barrel at 10:32 a.m. on the New York Mercantile Exchange. Prices are down 8.2% this year and are 55% lower than a year ago.

"The IMF numbers show why, despite relatively good compliance, it's still a struggle for OPEC, " said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. "It will probably be well into the second half of the year before we get evidence of a recovery."

The Organization of Petroleum Exporting Countries won't hesitate to cut output further if prices keep falling, the group's secretary general, Abdalla el-Badri, said at the World Economic Forum today in Davos, Switzerland. Current prices below $50 a barrel are "too low" because they don't allow producers to invest in expanding capacity, he said.

U.S. oil demand may fall for several years because of energy efficiency measures, Merrill Lynch said in a report. Oil prices may reach a trough in the first half of this year before rebounding as investment cutbacks create a supply shortage, Merrill analysts said in the report.

U.S. fuel consumption during the four weeks ended Jan. 23 averaged 19.4 million barrels a day, down 4% from a year earlier, yesterday's Energy Department report showed.

Crude oil supplies at Cushing, Oklahoma, where oil thatís traded on Nymex is stored, climbed 0.9% to 33.5 million barrels last week, the highest since at least April 2004, when the department began keeping records, according to the report.

Refineries operated at 82.5% of capacity last week, down from 83.3%. Output fell as companies announced shutdowns for maintenance to switch their production from heating oil to gasoline ahead of the peak motor fuel demand period starting May.

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