Oil drops from three-day high

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LONDON, May 10 (Bloomberg): Oil fell from a three-day high in New York on speculation US crude stockpiles increased to near the highest level in two years. Futures dropped as much as 2.4 per cent before an American Petroleum Institute report on inventories Tuesday. The Energy Department may say tomorrow supplies climbed for a third week. CME Group Inc. raised margins, or the amount of money traders must hold as collateral for their transactions, for futures trading in New York. Bank of America Merrill Lynch said prices will recover as conflict halts exports from Libya. "Demand in the US is still a bit weak," saidEliane Tanner, an analyst at Bank Sarasin & Cie in Zurich. "But demand from emerging markets is still strong. From a fundamental point of view the correction was overdone as the supply situation in Middle East-North Africa region is still not resolved, so there's a bit of upside for prices." Crude for June delivery slid as much as $2.43 to $100.12 a barrel in electronic trading on the New York Mercantile Exchange. It was at $101.15 at 10:51am London time. Oil rose 5.5 per cent to $102.55 Monday, the biggest gain since the February 22. Last week it dropped the most since December 2008. Brent crude for June settlement on the London-based ICE Futures Europe exchange fell as much as $2.32, or 2 percent, to $113.58 a barrel. Yesterday, it jumped 6.2 per cent to $115.90. Brent, the European and African benchmark, traded at a premium of $13.59 a barrel to US futures, the highest since April 18. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb. 21. It averaged 76 cents last year. CME Group, the Nymex owner, increased margins for crude trading to $8,438 per contract from $6,750, effective after the close of business today. Heating-oil margins will rise to $8,438 from $6,413, and gasoline will climb to $9,450 from $7,763. Crude also dropped as the dollar gained, damping the investment appeal of commodities. The Dollar Index, a measure of the greenback against six major currencies, climbed as much as 0.4 per cent to 75.005. The dollar and oil have moved in the opposite direction about 86 per cent of the time over the past month, according to Bloomberg calculations of the two instrument's correlation. "As we continue to expect higher prices near-term, we view the recent dip in oil as short-term buying opportunity," analysts led by New York-based head of commodities research Francisco Blanch said. "With limited oil supplies and a supportive demand environment in the short-run, Brent crude oil prices should still trade close to an average of $122."