Oil prices slide after hitting five-month peaks

By AFP

July 15, 2010 Updated May 5, 2009 at 5:01 PM CDT

Oil prices fell Tuesday after rallying to the highest levels this year as traders braced for a report likely to show rising inventories in the United States, the world's largest energy consumer.

New York's main futures contract, light sweet crude for June delivery, dropped 63 cents from its closing price on Monday to end at 53.84 dollars a barrel, after scaling 54.83 dollars -- the highest level since November 18.

Brent North Sea crude for delivery in June shed 46 cents to 54.12 dollars a barrel, also after striking a five-month peak of 54.91 in early Tuesday trades.

Traders said the market expected US crude inventories to have surged from their 19-year highs. The Energy Information Administration is scheduled to release Wednesday petroleum inventories for the week ending May 1.

"The economic outlook may be turning more positive for the end of 2009 but the immediate concern in petroleum markets is the inventory overhang and sluggish demand," said a report by BMO Capital Markets.

"On the supply side all we hear is that there is a glut of oil," said Phil Flynn of Alaron Trading.

He said it was surprising that oil prices had climbed in recent days despite the expectation for more increases in supplies.

"Oil bears are stunned and believe that the market is defying rational explanation. Still oil failed to break-out over the high and this gives the bears hope that their long nightmare is over," he said.

Mike Fitzpatrick of MF Global also referred to the supply overhang.

"For oil markets, this may prove a particularly hard lesson with the extraordinarily high level of supply, not only on land but also afloat," he said.

"Higher prices will invariably bring these stocks to market. While it may prove true that the economy, and oil prices, truly have bottomed out, it will probably take a lot more evidence than we have seen so far to hold and extend price gains," Fitzpatrick said.

World oil prices have slumped since striking record highs above 147 dollars in July 2008, with a global economic downturn sharply denting demand.

Recent data showed that manufacturing in China expanded for the first time in nine months in April and should be supportive of oil prices as it means higher demand from the world's most populous nation, analysts said.

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