By Mark Shenk June 29 (Bloomberg) -- Oil, heading for its first quarterly decline since the end of 2008, may fall in the second half on signs that the economic recovery in developed countries is slowing. “Getting out of the worldwide recession was always going to be a long slog,” Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, who forecast oil will average $65 a barrel in the third quarter and $70 in the fourth, said in an interview. “It’s always been our view that the second half of 2010 was going to be a tough period.” The U.S. Energy Department trimmed its crude-oil demand and price forecasts for 2010 this month. World consumption will average 85.51 million barrels a day this year, down from the 85.55 million predicted in May, the department said June 8. West Texas Intermediate oil, a global benchmark blend, will average $78.75 this year, down from $82.18 forecast in May, the department said. Dollar Gains Crude has declined as the dollar strengthened, reducing the investment appeal of commodities. The Dollar Index, which gauges the currency against those of six major U.S. trading partners, gained more than 10 percent this year amid concern European nations will default. The European Union put together a 750 billion-euro ($921 billion) rescue package on May 10 to stop the crisis from spreading. “We did avoid a financial meltdown in Greece and Spain but otherwise the picture in Europe is grim,” said David Kirsch, a Paris-based analyst with PFC Energy, an energy strategist to companies and governments. “We’re looking for poor demand throughout the OECD. The U.S. only looks good in comparison with the EU and Japan.” Oil consumption among the 30 industrialized nations that belong to the Organization for Economic Cooperation and Development will average 45.4 million barrels a day in 2010, down 8.3 percent from a record 49.5 million in 2006, according to the Energy Department. Hurricane Season Prices may rise in July and August because of U.S. gasoline demand and the Atlantic hurricane season, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. U.S. consumption of the motor fuel peaks from the Memorial Day weekend in late May to Labor Day in early September. The hurricane season began June 1 and ends on Nov. 30. “By the end of the next quarter the driving season will have come to an end and it looks like it will be a rather anemic one at that,” Lynch said. “The hurricane season is the one thing that will give the market support.” U.S. gasoline consumption fell in May to the lowest level for the month since 2003, the American Petroleum Institute said in a June 18 report. Deliveries of gasoline, a measure of demand, averaged 9.05 million barrels a day, down from 9.09 million in May 2009, the industry-funded group said. Tropical Storm Alex, the first named system of this year’s Atlantic season, is likely to become a hurricane today, with winds of 70 miles-per-hour (110 kilometers-per-hour), as it approaches landfall near the Texas-Mexico border late tomorrow or early July 1, according to the U.S. National Hurricane Center. Crude declined 0.8 percent yesterday on signs the storm will miss most producing areas in the Gulf of Mexico, which accounts for about 30 percent of U.S. oil output. Surplus Stockpiles U.S. crude oil supplies rose 0.6 percent to 365.1 million barrels in the week ended June 18, leaving stockpiles 11 percent above the five-year average for the period, according to the Energy Department. “The underlying fundamentals haven’t changed,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “There will remain a tremendous amount of crude available. Once demand lets up in September we should see a correction in prices.” Crude climbed to $87.15 on the New York Mercantile Exchange on May 3, the highest level since Oct. 9, 2008, before trading as low as $64.24 on May 20. Risk of Lows “There’s a significant risk that we’ll test the low levels that were touched in late May,” PFC’s Kirsch said. “Prices will probably average in the mid-$60s during the third quarter. There won’t be a seasonal run-up during the fourth quarter unless OPEC significantly reduces supply, which doesn’t look likely.” U.S. government attempts to restrict deepwater drilling may reduce oil output following the sinking of the BP Plc-leased Deepwater Horizon rig in the Gulf on April 22. The government in May extended a moratorium on deepwater drilling permits by six months. A federal judge lifted the order on June 22. “I have had to take a new look at the market since the explosion of the Deepwater Horizon drilling rig,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “We are now looking at a deficit in supply, the scope of the deficit is a question.” U.S. crude output will drop by an average 26,000 barrels a day in the fourth quarter of this year and 70,000 barrels a day in 2011 should the moratorium be reinstated, according to the Energy Department. “Supplies are certainly adequate given the weakness in Europe and elsewhere in the OECD,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser. “Whatever will be lost here because of the moratorium, which is only set to last six months, will be more than offset by OPEC spare capacity.” --With reporting by Margot Habiby in Dallas. Editors: Dan Stets, Joe Link To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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