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By Bloomberg

Oil pared gains after the biggest rally in two months as investors weighed forecasts for rising U.S. crude supplies against signs that Saudi Arabia is betting on an improvement in demand.

Futures slid as much as 0.9 percent in New York, trimming a 6.1 percent surge on Monday. Prices will stay low this year as U.S. stockpiles increase to “historically elevated levels” through 2016, Goldman Sachs Group Inc. predicted. Saudi Arabia’s announcement Sunday to raise differentials for May shipments to Asia follows a recovery in profits for refining crude into fuels, data compiled by Bloomberg showed.

Oil is failing to sustain a rebound this year amid speculation that a global glut that drove the market almost 50 percent lower in 2014 will persist. World demand is improving, Saudi Arabia’s Oil Minister Ali al-Naimi, who led OPEC’s decision in November to maintain production quotas amid the surplus, said last month.

“The numbers still show that supply continues to grow,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone. “Is it being consumed? Perhaps not, but the Saudis increasing their price to Asia indicates they’re seeing demand.”

West Texas Intermediate for May delivery fell as much as 49 cents to $51.65 a barrel in electronic trading on the New York Mercantile Exchange and was at $51.70 at 12:38 p.m. Singapore time. The contract advanced $3 to $52.14 on Monday, the highest close since Feb. 18. The volume of all futures traded was about 46 percent below the 100-day average. Prices are down 2.9 percent this year.

Crude Supplies

Brent for May settlement dropped as much as 72 cents, or 1.2 percent, to $57.40 a barrel on the London-based ICE Futures Europe exchange. It climbed $3.17 to $58.12 on Monday. The European benchmark crude traded at a premium of $5.76 to WTI.

U.S. crude inventories expanded to 471.4 million barrels through March 27, the highest level in weekly Energy Information Administration records dating back to August 1982. Supplies probably rose by 3 million for a 13th week of gains, according to the median estimate in the Bloomberg survey of five analysts before a report Wednesday from the Energy Department’s statistical arm.

While U.S. stockpiles may peak in April, prices need to stay low for longer to sustain a slowdown in output growth, Goldman said in an e-mailed report on Monday.

‘Insufficient’

“Uncertainty on the near-term outlook for production remains high,” Goldman analysts including Damien Courvalin in New York said. “While the decline in the U.S. rig count has been faster than we expected, it remains insufficient in our view to balance the U.S. market in 2016.”

Saudi Arabian Oil Co. raised its official selling prices for all five crude grades it exports to Asia for a second month, an e-mailed statement from the Dhahran-based company showed on Sunday. Asia’s benchmark crack spread, or the profit from processing Dubai crude into gasoline and diesel, averaged $15.75 a barrel last month, the highest since July 2013, according to data compiled by Bloomberg.