NEW YORK (Bloomberg) — Crude oil fell amid speculation that this year's 37 percent rally is unsustainable because of sluggish demand brought on by the recession.

A survey of business confidence in Germany advanced less than economists expected as the worst business slowdown in a half century lingers in Europe, the US and Asia. Oil prices were also constrained by speculation that Opec won't reduce oil-output targets when it meets May 28.

"We've got plenty of supplies and there's nothing to suggest the economy is improving," said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. "Opec doesn't look like it will lend much support. The market is trying to figure out where it's going next."

Crude oil for July delivery fell 23 cents, or 0.4 percent, to $61.44 a barrel in late-afternoon electronic trading on the New York Mercantile Exchange. Oil earlier declined as much as 79 cents, or 1.3 percent, to $60.88 a barrel.

Floor trading was shut yesterday in the US for Memorial Day. Markets in London also were closed for a bank holiday.

Oil prices rose last week as the dollar fell 3.7 percent against the euro on speculation that the US credit rating will be cut.

"An overhang of inventories built up at sea and continuously poor economic data encourages selling because the rally looks unsustainable," said Harry Tchilinguirian, BNP Paribas's senior oil-market analyst in London.

Natural gas, heating oil and gasoline also fell in New York trading. Natural gas for June delivery fell five cents, or 1.4 percent, to $3.465 per million British thermal units.

Germany's Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 84.2 in May from 83.7 in April. Economists expected a gain to 85, the median of 39 forecasts in a Bloomberg News survey. The index reached a 26-year low of 82.2 in March.

Saudi Arabia, the Organisation of Petroleum Exporting Countries' largest producer, is "absolutely fine" with adherence to the group's 4.2 million barrel-a-day production cut, Oil Minister Ali al-Naimi said yesterday. Opec, responsible for 40 percent of global crude supply, is likely to keep output quotas unchanged for a second time this year as recovering oil prices forestall the need for new cuts, according to a Bloomberg survey published on May 22.

"The price has recovered so much since the last meeting and that removes the pressure for Opec to cut production," said David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney. "Some people are viewing oil as a hedge against currency weakness."

Saudi Arabia is producing more crude oil than its Opec quota, according to data from the Joint Oil Data Initiative, citing figures submitted by the country.

The US currency earlier rose against the euro after North Korea said it conducted a "successful" nuclear weapons test yesterday, spurring demand for the relative safety of the dollar and reducing the attractiveness of commodities as an inflation hedge.

The dollar had gained after North Korea announced the test, the second time Kim Jong Il's regime detonated a nuclear device. The yen fell from near its highest level in more than two months, weakening to 94.87 per dollar by 4.50 p.m. in New York.

Brent crude for July settlement fell 57 cents, or 0.9 percent, to settle at $60.21 a barrel on London's ICE Futures Europe exchange.