Crude oil dropped in New York after the International Energy Agency (IEA) said 2009 demand may fall to the lowest in five years as factories shut and car sales tumble amid a deepening global recession, media sources reported. Crude oil dropped as much as 86 cents, or 1.7%, to $51.38 a barrel in electronic trading on the New York Mercantile Exchange. It was at $51.74 a barrel at 12:52 p.m. in Singapore.

The IEA said that oil consumption will drop 2.4 million barrels a day in 2009, about the same amount that Iraq produces, to 83.4 million barrels a day.

The Energy Department said on April 8, 2009 that the US crude supplies are at their highest since July 1993.

“Although a lot of people already understood that demand is not good, the IEA report is making speculators bearish,” said Ken Hasegawa, a commodity derivative sales manager at brokerage Newedge in Tokyo. “There is still no confidence to buy the market and take long positions.”

Oil futures dropped 0.5% last week, snapping seven weeks of gains. Crude has increased 16% in 2009, after tumbling 54% in 2008.

“Signs that the economic situation is getting better will be supportive for the market, so the downside is limited, but the market can’t go higher,” Newedge’s Hasegawa said. “We’ll be in a narrow range of $47 to $53 a barrel.”

IEA’s Forecast

The decline outpaces supply from Iraq, which in March 2009 produced 2.27 million barrels a day.

“The pace of contraction is close to early 1980s levels, with a growing consensus that economic and oil demand recovery will be deferred to 2010,” the Paris-based agency said in its monthly report.

Consumption during the first quarter of 2009 was revised lower by 700,000 barrels a day, the IEA said.

“The IEA has a history of being too optimistic towards world oil demand,” Deutsche Bank’s analysts, led by Joel Crane, said in a report on April 9 before the IEA release. “On our estimates, global oil demand growth is equivalent to world GDP growth less 2 percent, which given our assumption that world growth will slump by 1.9 percent implies a potential contraction of global oil demand of over 3 million barrels a day.”

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended April 7, 2009 as per the US Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will raise, outnumbered short positions by 12,493 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions increased by 5,947 contracts, or 91%, from a week earlier.