Oil Declines Amid Signs That High Prices May Hurt Asian Demand

By Grant Smith

May 12 (Bloomberg) -- Crude oil fell for the first time in six days amid signs that record prices may curb demand in emerging markets.

China's oil imports fell in April as crude costs prompted refiners in the world's second-largest energy consumer to cut purchases. India's industrial production grew at the slowest pace since 2002, government data showed today. The U.S. dollar strengthened against the euro, limiting oil's appeal as a currency hedge.

"There's a risk we're underestimating that global commodity inflation is creating a burden on emerging countries,'' said Olivier Jakob, managing direction of Petromatrix Gmbh in Zug, Swizterland.

Crude oil for June delivery fell as much as 90 cents, or 0.7 percent, to $125.06 a barrel in electronic trading on the New York Mercantile Exchange. It was at $125.28 a barrel at 10:17 a.m. in London.

Oil prices rose 8.3 percent last week, reaching a record $126.27, on concern that supply won't keep pace as demand peaks during the U.S.'s summer driving season. Crude futures have doubled in the last year.

Brent crude oil for June settlement fell as much as 95 cents, or 0.8 percent, to $124.45 a barrel on London's ICE Futures Europe exchange. It was at $124.81 a barrel at 10:18 a.m. London time. It closed up $2.56, or 2.1 percent, at a record $125.40 a barrel on May 9.

Dollar Hedge

The dollar rose against the yen for the first time in six days as traders judged its losses were excessive given speculation the Federal Reserve will refrain from lowering interest rates.

Traders have been buying commodities as a hedge against inflation as the dollar has declined to record lows against the euro. The currency was trading at $1.5428 to the euro at 9:42 a.m. London time, up from a record $1.5991 on April 22.

"We're particularly focused on what the U.S. dollar is doing and that's showing signs of strength,'' said Rowan Menzies, head of research for Commodity Warrants Australia Ltd.. "A good dollar move could underpin a fall there.''

China ordered banks to set aside larger reserves for the fourth time this year after inflation accelerated to close to the fastest pace since 1996. That may cool growth in the world's fastest-growing major economy and curb commodities demand.