Oil dips in Asia on signs of building inventories

[March 25, 2009]  KUALA LUMPUR, Malaysia (AP) -- Oil prices declined in Asia Wednesday in tandem with a pull back in global stock markets and on signs of building crude inventories.

Benchmark crude for May delivery fell 96 cents to $53.02 a barrel by afternoon Asian electronic trading on the New York Mercantile Exchange. The contract staged a late rally Tuesday to close up 18 cents at $53.98 a barrel.

Oil prices haven't climbed much higher because the buying has been driven by stock market gains and not because of a real improvement in global oil demand.

A report Tuesday by the American Petroleum Institute showed a build up of crude stock, a day ahead of a U.S. government report on domestic crude inventories, said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Analysts expect a build up of 1.4 million barrels in commercial crude oil stocks in the U.S, the world's largest energy consumer, a Platts survey showed.

"That is bearish news," Shum said. "Some caution has crept into the market and expectations that the U.S. government inventory report will show an increase will likely put downward pressure on oil pricing."

Oil prices rallied all last week and again on Monday amid gains in stock markets and optimism about a U.S. government plan to buy up toxic assets from banks to resolve to financial crisis. A weaker dollar has also caused investors to flee to commodities like oil, which have risen more than 30 percent this month.

Wall Street declined slightly Tuesday, and Asian markets were mixed Wednesday as investors took stock of the recent rally. Analysts said if more good news emerges, stocks could keep climbing. But if they fall back in coming days, oil will likely follow.

"I am not convinced that oil (pricing) is turning around. It's a short spike on the back of the stock market rally but eventually I expect it to fall back below $50," said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore.

With effects of the OPEC production cuts and a global economic recovery likely to kick in late in the year, Chu said he foresee oil demand and price to only bounce back by the second half.

Russian Finance Minister Alexei Kudrin also warned Tuesday that the recent rise in oil and stock prices may be "temporary."

But the oil rally led China on Tuesday to raise its benchmark retail price of gasoline and diesel fuel.

In other Nymex trading, gasoline for April delivery fell 1.81 cents to $1.4845 a gallon, while heating oil lost 2.31 cents to $1.4765 a gallon. But natural gas for April delivery climbed 0.7 cent at $4.34 per 1,000 cubic feet.

In London, Brent prices shed 87 cents to $52.63 on the ICE Futures exchange.

[Associated Press; By EILEEN NG]

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