Crude Oil May Fall on US Inventory Increase

Crude oil may fall on speculation that surging inventories will reduce the impact of a possible disruption to Iranian exports, according to a Bloomberg News survey.

Twenty-six of 52 analysts, traders and brokers said prices will decline next week.  Seventeen of those surveyed forecast an increase and nine expected little change. Forty-five percent of respondents a week ago correctly predicted that futures would rise. Prices gained 3.1 percent this week.   “Prices are reflecting geopolitics while inventories remain at historical highs,'' said Andrew Harrington, an industry analyst at Australia & New Zealand Banking Group Ltd. in Sydney. 

U.S. supplies rose 3.2 million barrels to 346 million last week, the highest since May 1998, according to an Energy Department report.  The increase left stockpiles 12 percent higher than the five-year average for the period.  Violence in Nigeria and a dispute over Iran's nuclear program helped push prices 14 percent higher this year.   “U.S. crude inventories are only 11 million barrels away from the highest point over the last 15 years,'' said Francisco Blanch, a senior oil strategist at Merrill Lynch & Co. in London.  “Seventy dollars a barrel is still a bit too high even with the supply risks,'' said Simon Wardell, an energy analyst with Global Insight Inc. in London.  There should be a “slight correction after the failure to really push through $70 a barrel this week. But, if Iran heats up again and we hit $70, then $75 looks likely.''

Mohamed ElBaradei, head of the International Atomic Energy Agency, is visiting Iran after President Mahmoud Ahmadinejad announced on April 11 that the Middle East country has produced enough enriched uranium to fuel a reactor and will accelerate the project.  The United Nations Security Council earlier demanded the suspension of Iran's program by the end of this month.  U.S. Secretary of State Condoleezza Rice said yesterday the UN should take steps to halt the program which the U.S. says is a front to develop nuclear weapons.

The U.S., Russia, China, the U.K. and France will hold private talks on the issue in the coming days, French Ambassador to the UN Jean-Marc de La Sabliere said on April 12. Any of the five countries can veto a council resolution.  China and Russia said Iran's nuclear program isn't a threat to peace and oppose discussion of sanctions.  “The Iranian announcement this week will inject more urgency into the nuclear issue,'' said Eoin O'Callaghan, an analyst with BNP Paribas in London.  “The market may be getting complacent about the disagreement between the five permanent Security Council members, which threatens to return inertia to the dispute once the UN's 30-day ultimatum expires.''