By Grant Smith March 23 (Bloomberg) -- Crude oil fell in New York before a report forecast to show that inventories in the U.S. rose. The strengthening dollar also blunted the appeal of commodities for hedging inflation. The U.S. Energy Department will probably report tomorrow that crude stockpiles rose by 1.43 million barrels, increasing for an eighth week, according to a Bloomberg News survey. That would be the longest period of advances since May. The U.S. currency approached a three-week high against the dollar on speculation European Union leaders will fail to agree on an aid package for Greece. “Global market balances are slowly tightening but still we have high spare capacity and high inventories, so the market could be range-bound for quite some time,” said Tobias Merath, head of commodity research at Credit Suisse Group AG. “Dollar strength is helping to cap the upside for some markets.” Crude oil for May delivery fell as much as 74 cents, or 0.9 percent, to $80.86 a barrel in electronic trading on the New York Mercantile Exchange, and traded for $81.30 as of 12:20 p.m. London time. Brent crude for May settlement was down 68 cents at $79.86 on the ICE Futures Europe exchange in London. The Energy Department is scheduled to release its weekly report at 10:30 a.m. in Washington tomorrow. Gasoline inventories probably declined 1.75 million barrels from 227.3 million the previous week, according to the median of 10 estimates before an Energy Department report. Distillate Stockpiles Stockpiles of distillate fuel, a category that includes heating oil and diesel, fell 1.33 million barrels from 148.1 million the prior week. Nine of the respondents forecast a decline and one expected a gain. “I don’t see with the fundamentals that oil prices should be squeezed dramatically higher,” said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. The Organization of Petroleum Exporting Countries has spare production capacity of more than 6 million barrels a day, Germanico Pinto, OPEC’s president and Ecuador’s oil minister, said at a conference yesterday in Geneva. That’s a “comfortable cushion of spare capacity,” he said. The group controls about 40 percent of global crude supply. By Alexander Kwiatkowski and Randall Hackley Oil may trade between $65 to $90 a barrel in the near term and will be prone to sharp jumps in price when economic growth spreads worldwide, an executive at Mercuria Energy Trading SA said today. “We are going to narrow the range in a substantial way,” Daniel Jaeggi, Mercuria’s head of trading, said at a United Nations conference in Geneva. “That being said, I believe that essentially the basic components of price volatility are still in play.” ‘Inevitable’ Recovery Supply constraints and the “inevitable” recovery in demand are likely to cause another price spike in the future, Jaeggi said. Yesterday he forecast oil prices could surge to $110 or $120, triggered through speculation or the supply-demand balance. Such prices would be unsustainable over an eight-to-12- month time frame, he said. The dollar traded for $1.3485 per euro as of 11:57 a.m. London time, compared with $1.3559 in New York yesterday. The euro weakened versus 12 of 16 major counterparts after European Central Bank President Jean-Claude Trichet spoke out against offering the low-interest loans for which the Greek government has pressed. To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net

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