By Grant Smith and Ann Koh Oct. 28 (Bloomberg) -- Oil fell, trading around $79 a barrel in New York before a report forecast to show that U.S. crude-oil inventories expanded last week. Oil slipped as European and Asian shares declined, sending the MSCI World Index lower for a seventh straight day. Crude oil stockpiles rose 1.91 million barrels in the week ended Oct. 23 from 339.1 million the prior week, according to a Bloomberg survey before today’s Energy Department report. “Oil is losing ground before the U.S. fuel inventories report,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “The huge inventory overhang we have makes a modest pull-back towards the low $70s likely in coming weeks, before heating oil demand takes the market back up again.” Crude oil for December delivery fell as much as 56 cents, or 0.7 percent, to $78.99 a barrel on the New York Mercantile Exchange and traded for $79.06 a barrel as of 8:57 a.m. London time. Prices have gained 78 percent this year and reached a one- year high of $82 a barrel on Oct. 21. Crude oil advanced 1.1 percent yesterday after the industry-funded American Petroleum Institute reported that crude stockpiles fell 1 percent to 339.5 million last week. The S&P/Case-Shiller home-price index also showed prices increased from the prior month. “We do see the global economy continue on its recovery path, and we could see more dollar weakness, which has a positive effect for dollar-denominated commodities,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “As much as underlying fundamentals, we haven’t really seen a huge degree of improvement.” OPEC Output The Organization of Petroleum Exporting Countries will raise oil output if there’s a “real” shortage of supply, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said yesterday in Ras Laffan, Qatar. The 12-member group is scheduled to meet Dec. 22 in Luanda, Angola, to review production targets. “Sometimes the price of oil has no correlation to demand and supply,” al-Attiyah said. “Now what we are seeing is that oil has a strong correlation with the dollar.” Oil fell 2.3 percent on Oct. 26 when the dollar climbed, reducing investor demand for commodities. The U.S. currency was at $1.48302 per euro as of 8:49 a.m. in London from $1.4787 yesterday. It also touched $1.4770 yesterday, the strongest level since Oct. 13. The dollar has weakened so far this year versus all but one of its 16 major counterparts, including a 5.7 percent drop against the euro. An Energy Department report today will probably show that U.S. crude-oil supplies rose 1.91 million barrels in the week ended Oct. 23 from 339.1 million the prior week, according to the median of 16 estimates by analysts before the department’s report. All respondents forecast a gain. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 169.9 million the prior week, according to the survey. Brent crude oil for December settlement was at $77.35 a barrel, down 57 cents, at 8:48 a.m. London time. It increased 66 cents, or 0.9 percent, to end the session at $77.92 a barrel on the London-based ICE Futures Europe exchange yesterday. To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net

Source