Oil dropped from a 17-month high after a government report showed a larger-than-forecast increase in U.S. crude stockpiles and an unexpected gain in gasoline supplies, and as the dollar’s decline slowed.

Oil pared yesterday’s gains, declining for the first time in four days, after an Energy Department report showed crude inventories rose 2.93 million barrels last week. It was the ninth straight advance, the most since May. Supplies were forecast to climb by 2.5 million barrels, according to the median of 16 analyst estimates in a Bloomberg News survey.

“The DOE data wasn’t overly supportive of prices,” said Toby Hassall, research analyst at CWA Global Markets Pty in Sydney. “There’s very little improvement. We’re seeing oversupply in the U.S. market. For the next leg-up in oil we’re probably going to need to see some more evidence of improvement in OECD demand.”

Crude oil for May delivery fell as much as 47 cents, or 0.6 percent, to $83.29 a barrel in electronic trading on the New York Mercantile Exchange. It was at $83.46 at 10:47 a.m. Sydney time. Yesterday, the contract rose $1.39, or 1.7 percent, to $83.76, the highest settlement since Oct. 9, 2008, after the dollar fell against the euro for the third time in four days.

The dollar traded little changed at $1.3521 per euro at 10:49 a.m. Sydney time, after declining 0.7 percent yesterday against the common currency. A weaker dollar bolsters the appeal of commodities as an alternative investment.

There will be no Nymex futures trading tomorrow because of the Good Friday holiday.

Gasoline Supplies

Gasoline stockpiles increased 313,000 barrels to 224.9 million last week, the Energy Department report showed. A 1.85 million-barrel decrease was forecast by analysts in a Bloomberg News survey.

The Organization of Petroleum Exporting Countries’ crude- oil production slipped from a 14-month high in March, led by an Iraqi cut, a Bloomberg News survey showed.

Output fell 30,000 barrels a day, or 0.1 percent, to an average 29.205 million barrels a day, according to the survey of oil companies, producers and analysts. Members with production quotas, all except Iraq, raised output by 55,000 barrels to 26.84 million barrels a day, the highest level since December 2008 and 1.995 million above their target.

Companies in the U.S. unexpectedly cut payrolls in March, according to data from a private report based on payrolls.

‘Slow Recovery’

The 23,000 decline was the smallest in two years and followed a revised 24,000 drop the prior month, data from ADP Employer Services showed yesterday. Over the previous six months, ADP’s initial figures have overstated the Labor Department’s first estimate of private payroll losses by as little as 2,000 in February to as much as 151,000 in November.

“The ADP employment report doesn’t auger well for Friday’s non-farm payrolls,” CWA’s Hassall said. “That is a reminder of a very slow recovery in the U.S.”

Economists surveyed by Bloomberg News anticipate the government’s report tomorrow will show payrolls increased by 184,000, in part due to temporary hiring by the federal government to conduct the 2010 census and because of better weather compared with February.

Brent crude oil for May settlement traded at $82.50 a barrel, down 20 cents, on the London-based ICE Futures Europe exchange at 11:06 a.m. in Sydney. Yesterday, the contract increased $1.42, or 1.8 percent, to end the session at $82.70 a barrel.