[MELBOURNE] Oil fell after the biggest rally in two months as investors weighed forecasts for rising US crude supplies against signs that Saudi Arabia is betting on an improvement in demand.
Futures slid as much as 1.6 per cent in New York, trimming a 6.1 per cent surge on Monday. Prices will stay low this year as US stockpiles increase to "historically elevated levels" through 2016, Goldman Sachs Group Inc predicted. Saudi Arabia's April 5 announcement raising differentials for May shipments to Asia follows a recovery in profits for refining crude into fuels, data compiled by Bloomberg showed.
Oil is failing to sustain a rebound this year amid speculation that a global glut that drove the market almost 50 per cent lower in 2014 will persist. While US stockpiles may peak in April, prices need to stay low for longer to sustain a slowdown in output growth, Goldman said in an e-mailed report on Monday.
"Recovery in demand is still having trouble keeping up with the pace of supply growth," Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen. "That will likely continue to be the case for another month or two, before we really will start to see a turnaround in oil demand that will support higher oil prices."
West Texas Intermediate for May delivery fell as much as 87 cents to US$51.27 a barrel in electronic trading on the New York Mercantile Exchange and was at US$51.42 at 10:16 am London time. The contract advanced US$3 to US$52.14 on Monday, the highest close since Feb 18. The volume of all futures traded was about 30 per cent below the 100-day average for the time of day. Prices are down 3.4 per cent this year.
Brent for May settlement dropped as much as US$1.10, or 1.9 per cent, to US$57.02 a barrel on the London-based ICE Futures Europe exchange. It climbed US$3.17 to US$58.12 on Monday. The European benchmark crude traded at a premium of US$6.12 to WTI. The spread was as little as US$5.52 on Monday, the smallest gap since Feb 12.
Prices gained Monday on speculation that Iran's full return to the global oil market may be unlikely this year, even after the Opec member reached a preliminary nuclear accord with world powers last week. If a comprehensive deal is reached in June, Iran's revival won't affect actual supplies before 2016, according to Morgan Stanley.
US crude inventories expanded to 471.4 million barrels through March 27, the highest level in weekly Energy Information Administration records dating back to August 1982. Supplies probably rose by 3 million barrels for a 13th week of gains, according to the median estimate in the Bloomberg survey of five analysts before a report Wednesday from the Energy Department's statistical arm.
US explorers idled rigs targeting oil for the 17th straight week, bringing the total count down to the lowest level in more than five years. Rigs targeting oil in the US declined by 11 to 802, the smallest decline since December, Baker Hughes Inc said on its website April 2.
"Uncertainty on the near-term outlook for production remains high," Goldman analysts including Damien Courvalin in New York said in a report Monday. "While the decline in the US rig count has been faster than we expected, it remains insufficient in our view to balance the US market in 2016."
Saudi Arabian Oil Co raised its official selling prices for all five crude grades it exports to Asia for a second month, an e-mailed statement from the Dhahran-based company showed on Sunday. Asia's benchmark crack spread, or the profit from processing Dubai crude into gasoline and diesel, averaged US$15.75 a barrel last month, the highest since July 2013, according to data compiled by Bloomberg.
World demand is improving, Saudi Arabia's Oil Minister Ali al-Naimi, who led Opec's decision in November to maintain production quotas amid the surplus, said last month.