Oil drops below $62 as big rally pauses

Oil prices eased off six-month highs May 21 in Asia after rallying the day before to above $62 a barrel on a bigger-than-expected fall in U.S. crude inventories.

Benchmark crude for July delivery was down 50 cents to $61.54 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange.

Oil has surged about 75 percent since March on signs the global economy, while still struggling through a severe slowdown, may have avoided a worst-case scenario.

On May 20, the July contract rose $1.94 to settle at $62.04 after the government said U.S. crude inventories fell for a second week, suggesting demand may be improving.

Crude stockpiles dropped by 2.1 million barrels for the week ended May 15, according to Energy Department’s Energy Information Administration; gasoline inventories dropped by 4.3 million barrels.

That was a bigger decline than analysts had expected, especially for gasoline. Still, oil supplies remain at 19-year highs, and some analysts question whether the recent jump in prices is justified when weak remains weak.

“The inventory data is looking better but demand is still soft,” said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. “To my mind, the oil price has risen prematurely and ahead of fundamentals.”

The oil rally has mirrored gains in stocks as investors bet the worst of the global economic downturn may be over.

“There’s a broadly less pessimistic view of the international outlook, which is encouraging people to get into oil,” Moore said.

In other Nymex trading, gasoline for June delivery fell 0.60 cent to $1.80 a gallon and heating oil dropped 0.86 cents to $1.53 a gallon. Natural gas for June delivery slid 1.1 cents to $3.96 per 1,000 cubic feet.

—The Associated Press