A slump in the number of outstanding crude oil futures to the lowest in seven months signals that this year’s rally is about to fizzle out, BNP Paribas SA said. Open interest on the New York Mercantile Exchange has dropped 12 percent in the past week to 1.094 million contracts, exchange data shows. This indicates that a 20 percent surge in oil this month that has pushed prices above $60 a barrel is ready to end, according to BNP Paribas, projecting that crude may fall back towards $40. The coincidence of the rally with the reduction in open interest suggests that prices are being boosted by traders balancing earlier sales rather than taking fresh positions, BNP’s senior oil market analyst Harry Tchilinguirian said. “I’m not sure if the oil market is necessarily buying into the green shoots theory,” Tchilinguirian said in a telephone interview from London. “The number of short positions to be covered is usually finite, so support for prices isn’t as strong as when you’re adding new positions.” Open interest is defined as the quantity of contracts bought that have not been cancelled by corresponding orders to sell. The open interest level for crude on the Nymex is at its lowest since Oct. 29. Oil has recovered from a four-year low of $32.40 a barrel in December as rebounding equity markets foster speculation that government stimulus measures will spur economic activity and demand for fuel. Still, U.S. crude oil inventories remain near their highest in nearly 19 years because of lower demand from consumers. Offshore Storage In addition to the stockpiles held in the U.S., traders are storing 102 million barrels of crude and 19 million barrels of refined fuels on tankers, according to London-based shipbroker E.A. Gibson. “Given the high level of crude inventories and contraction in activity in advanced economies, we still expect a large correction from these levels,” Tchilinguirian said. “A low $40s level is still possible if oil held in floating storage is released back onto the market.”

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