AMSTERDAM (May 09 2003) - The premium for nearby European rapeseed oilcontracts is expected to unwind over the next several weeks as demandturns out to be less than expected, traders said on Thursday.

Nearby May/July rape oil was offered 55 euros more expensive thanAugust/October on Thursday, off a peak of around 60 euros late last month.

The premium for old crop oil shot up from around 10 euros in early Marchon fears of heavy demand chasing tight supplies ahead of the new crop.

"I think the spread between the old and new crop will narrow because weare not seeing any big enquiries for the near position and there aresufficient supplies in tank," a trader in Germany said.

Rape oil stocks in Rotterdam have declined in recent weeks to 31,062tonnes from 52,342 tonnes in late March, but they are still above a low of19,691 tonnes touched in December.

Imported rape oil from Canada destined mainly for the bio-diesel industryhas added to supplies in Europe.

A general unsettled sentiment is also contributing to slow activityrecently, a Dutch broker said.

"It's been rather quiet because of the uncertainty about everything, theSars disease in the Far East, the North American crop and the SouthAmerican crops," he said, referring to Latin American rival oilseedssoyabeans and sunflower seeds.

Depending on how the new European rapeseed crop develops, the premium fornearby rape oil could shrink to 10-20 euros within the next six weeks, theGerman trader added.

"At the moment the crop looks good. Here in Germany it looks excellent,they expect at least the crop of last year," the trader said.

Winter cold snaps and dry weather sparked fears about damage to the crop,but recent rains have eased the stress.

Rapeseed output in the European Union is set to be largely unchanged at9.36 million tonnes this season compared to 9.37 million in 2002-03,industry newsletter Oil World has forecast.

In Poland, however, rapeseed output is expected to fall by as much as 15percent to around 850,000 tonnes in 2003 due to the harsh winter thisyear, planters said late last month.

World rapeseed output is set to jump to 38.14 million tonnes in 2003-04from 32.64 million last season, Oil World said.

The price development for new crop rape oil will also depend on howbio-diesel demand holds up, traders said.

Germany has been expanding capacity each year and in March the EuropeanParliament passed non-binding recommendations that bio-fuel should make uptwo percent of all fuel used in EU public transport by December 2005 and5.75 percent by the end of 2010.-Reuters