Crude oil dropped for the first time in five days in New York on concern the US economy will keep shrinking, worsening an oversupply. Crude oil for June 2009 delivery dropped as much as $1.18, or 2.3%, to $50.37 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was traded at $50.39 a barrel at 11:56 a.m. in Singapore.

The director of White House National Economic Council, Lawrence Summers, said that the economy in the world’s largest oil consumer will continue to contract for some time. Increased output by non- Organization of Petroleum Exporting Countries (OPEC) producers has increased the market oversupplied by about 720,000 barrels a day, said Algerian Oil Minister Chakib Khelil.

“It’s difficult to see a really sustained rally in oil,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “There are so many downside risks to the global economy.”

The contract increased 3.9% to $51.55 a barrel on April 24, 2009 as a weaker dollar and rising equity prices boosted investment in commodities. Oil increased $5.67 in its first four- session rally in a month, trimming the weekly drop to 1.8%.

“As long as people are playing commodities as a proxy for the global economy, we’ll continue to see a floor under prices around the $50 level,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. “If you look at the fundamentals though, prices should be about $10 lower. Demand is weak and supplies are high.”

$70 Oil

Crude prices need to be at $70 a barrel to ensure continued investment in the industry, Abdalla el-Badri and secretary-general of the OPEC, said in Algiers. Oil may reach $60 a barrel by the end of 2009, Khelil said.

OPEC agreed in 2008 to cut production by 4.2 million barrels and will review production again when it meets May 28, 2009.

Saudi Arabia, is under pressure from the rest of OPEC to pare output further, the Kingdom’s former oil minister Sheikh Ahmad Zaki Yamani said in Cairo.

“I can’t see them cutting,” Commodity Warrants’ Hassall said. “They’ve played their cards pretty well so far. They’ve actually been fairly successful if you look at where prices are, considering the global macro environment.”

Brent crude for June 2009 settlement dropped as much as 99 cents, or 1.9%, to $50.68 a barrel on London’s ICE Futures Europe exchange. The contract was at $50.75 a barrel at 11:50 a.m. Singapore time. It increased $1.56, or 3.1%, to $51.67 a barrel on April 24, 2009.