Crude Oil Falls a Second Day on U.S. Economy Concerns, OPEC

Source: Bloomberg 3/16/2007, Location: North America

Crude oil fell for a second day in New York on concern defaults in the U.S. housing market may slow demand in the world's biggest oil user.

Oil dropped yesterday after OPEC kept production targets unchanged and warned of ``downside risks'' to global demand if the U.S. economy wanes. Prices fell further after former Federal Reserve Chairman Alan Greenspan said defaults on high-risk, or sub-prime, home loans may impact the broader economy.

Crude oil for April delivery fell as much as 40 cents, or 0.7 percent, to $57.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $57.20 in Singapore.

The contract declined 61 cents, or 1.1 percent, to $57.55 a barrel yesterday, the lowest closing price since Feb. 1.

Oil fell five of the past six sessions and is down 6.9 percent this month. The S&P 500 Index dropped 2 percent on March 13, the second biggest one-day loss this year, after a report showed U.S. home loan defaults reached a record. The index has recovered half that decline the past two days.

In London, Brent crude oil for May settlement was down 61 cents, or 1 percent, to $60.37 a barrel in electronic trading on the ICE Futures exchange. It was at $60.38 at 11:46 a.m. Singapore time.

Global Risk

The Nikkei 225 Stock Average in Japan, the world's third- largest oil consumer, fell 0.3 percent in early trading today. It is down 2.1 percent this week.

``Potential downside risks to the world economic outlook are coming to the fore,'' the Organization of Petroleum Exporting Countries said in a demand forecast.

``We are worried about a recession in the United States,'' Abdullah bin Hamad Al-Attiyah, Qatar's oil minister, told reporters in Vienna yesterday. ``They are our customers and we want to see our customers remain in healthy condition.''

OPEC, which pumps about 40 percent of the world's oil, raised its global demand forecast for 2007 to 85.5 million barrels a day and left its production target unchanged. The group agreed at its previous two conferences to lower crude supply by 1.7 million barrels a day to stem rising stockpiles and raise prices.

Support, Direction

Oil prices slid to a 20-month low of $49.90 on Jan. 18 before rising the next six weeks as a late cold-snap raised U.S. heating demand. Temperatures across most of the country may be above average in the week ended March 29, the National Weather Service said yesterday.

Prices may rise next week, according to 21, or 49 percent, of 43 analysts surveyed by Bloomberg News.

Oil for May delivery, the more widely held contract, will be well-supported at $57.50 a barrel, Access's Frye said. It was up 9 cents at $60.05 in after-hours trading.

Still, prices may struggle to move higher without fresh bullish news, he said. Lingering concerns about U.S. equity markets may also ``freeze'' investor appetite for taking on more risk in other markets.

``We're just going to be chopping and changing for maybe the rest of this year in some sort of wide range between $63 and $50,'' Frye said.

Gasoline for April delivery was at $1.8732 a gallon in after-hours trading after falling 2.3 percent yesterday. The contract reached $1.9550 on March 13, the highest in almost seven months.

The profit margin or ``crack'' spread for turning three barrels of crude into two barrels of gasoline and one of heating oil jumped to $19.8232 on March 13, the highest since Oct. 4, 2005. Refineries shut and prices surged when hurricanes Rita and Katrina struck the Gulf of Mexico in August and September 2005.

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