Oil fell from its highest level in more than 30 months on signals demand may drop in the U.S. and China, the world’s largest oil-consuming countries. Crude slid as much as 0.9 percent in New York after the Institute for Supply Management reported a smaller-than-forecast increase in its U.S. index of non-manufacturing businesses and China’s central bank raised interest rates. U.S. oil supplies probably rose last week, according to a Bloomberg survey of analysts before an Energy Department report tomorrow. “This is a real myriad of factors from the global economic to domestic inventories to foreign exchange,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas. “Everything is pushing on crude today, but despite all of these downward pressures, the price is still showing some resistance.” Oil for May delivery dropped 15 cents to $108.32 a barrel at 11:53 a.m. on the New York Mercantile Exchange. It traded as high as $108.78 a barrel yesterday, the highest price since Sept. 24, 2008. Futures have risen 25 percent in the past year. “The market is trying to consolidate right now below the new 2 1/2-year high,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. Oil faces technical resistance at about $110 a barrel and has support at about $105 a barrel, he said. Prices often don’t extend gains when traders’ sell orders are clustered at specific levels, creating so-called price resistances. Similarly, clusters of buy orders create support. U.S., China The ISM’s index for service industries in the U.S., the biggest part of the economy, dropped to 57.3 last month from 59.7 in February. A measure of 50 signals growth, and economists had projected a March reading of 59.5, according to the median estimate in a Bloomberg News survey. China raised interest rates by 25 basis points to restrain inflation in the world’s fastest-growing major economy. The increase in one-year lending and deposit rates was the fourth since the end of the global financial crisis. The increase “might put a brake on growth in oil demand in China,” Paul Harris, head of natural resources risk management at Bank of Ireland in Dublin, said by phone. Chinese oil demand grew 15 percent in January from the year before, the International Energy Agency reported last month. Oil also fell before a report tomorrow that may show supplies increased by 2 million barrels last week to the highest level since November as imports climbed and high prices depressed fuel demand, a Bloomberg News survey showed. U.S. Supply Inventories gained 0.6 percent in the seven days ended April 1 from 355.7 million a week earlier, according to the median of 15 analyst estimates before an Energy Department report tomorrow. Fourteen of the respondents forecast a gain and one a decline. The industry-funded American Petroleum Institute will publish its own data today. Brent for May settlement rose $1.29, or 1.1 percent, to $122.35 a barrel on London’s ICE Futures Europe exchange. The contract climbed to $122.71, the highest level since Aug. 4, 2008. The European benchmark traded at a premium of $14.03 a barrel to U.S. West Texas Intermediate futures. The difference between front-month contracts in London and New York was $12.59 yesterday and $10.37 a week ago. The spread between the contracts reached a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and supplies climbed at Cushing, Oklahoma, the delivery point for the New York contract. Cushing inventories were at a record 41.9 million barrels in the week ended March 25, according to the Energy Department. Inflation, Dollar New York futures also declined as the dollar advanced after Federal Reserve Chairman Ben S. Bernanke said late yesterday that policy makers must watch inflation “very closely” for evidence that rising commodity costs are having more than a temporary impact on consumer prices. “So long as inflation expectations remain stable and well anchored” and the rise in commodity prices slows, then “the increase in inflation will be transitory,” Bernanke said yesterday in response to audience questions after a speech in Stone Mountain, Georgia. To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net. To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

Source