SINGAPORE (Bloomberg) -- Crude oil fell on speculation a deepening economic contraction in the U.S., the world’s biggest energy consumer, may cause the slump in fuel demand to worsen.

U.S. manufacturing probably shrank in January at the fastest pace in 28 years, according to a Bloomberg News survey before an Institute of Supply Management report later on Monday. The United Steelworkers union agreed to extend negotiations with refiners on contract proposals, delaying a strike that may affect 8.7 percent of U.S. refinery capacity.
“It’s weak demand,” said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt. “And availability of crude will be higher should the workers walk out. The build-ups should continue and maybe even accelerate.”
Crude oil for March delivery fell as much as $1.42, or 3.4 percent, to $40.26 a barrel in electronic trading on the New York Mercantile Exchange. Oil was at $40.47 a barrel at 10:30 a.m. London time.
New York futures traded at a discount of $4.78 a barrel to Brent crude contracts in London, the biggest since the previous Nymex expiry on Jan. 20. Brent crude oil for March settlement fell as much as $1.48, or 3.2 percent, to $44.40 a barrel on London’s ICE Futures Europe exchange.
New York futures fell 10 percent last week and are down 71 percent from the record $147.27 a barrel on July 11. Still, prices have rebounded from a four-year low of $32.40 reached Dec. 19 as the Organization of Petroleum Exporting Countries implements a record supply reduction.
---------‘Bearish Backdrop’
“The bearish macro backdrop should cap any rallies above $50,” said Edward Meir, an analyst at MF Global Ltd. in Connecticut. “The OPEC cutbacks seem to have stopped, at least for now, the worst of the recent downward spiral. Of the two variables, the macro element is by far the more important.”
The Institute of Supply Management factory index probably dropped to 32.5 last month from 32.9 in December. Readings below 50 signal contraction. U.S. gross domestic product contracted 3.8 percent
The United Steelworkers union didn’t receive any new proposals from Royal Dutch Shell Plc on Sunday, Lynne Baker, a spokeswoman for the union, said in an e-mail. “Both parties continue to discuss bargaining issues,” she said, without giving details.
The negotiations cover workers at 86 plants including operations owned by Exxon Mobil Corp., Valero Energy Corp., BP Plc and Chevron Corp. as well as Shell. The contract extension was agreed on late Sunday in Austin, Texas, where the talks started Jan. 20.
Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Jan. 27, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 51,652 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 5,518 contracts, or 12 percent, from a week earlier.