Oil Prices Near $61 Despite Energy Report

WASHINGTON – Oil prices rose Wednesday in spite of an international energy watchdog’s forecast of slower-than-expected demand growth and a Department of Energy report that showed rising supplies of heating oil and diesel.

While the above factors had a moderating influence on prices, traders remained concerned about storm-related output disruptions in the Gulf of Mexico, which they partly blamed for the decline in U.S. crude oil inventories that showed up in the U.S. energy agency’s weekly report.

"It’s a tug of war," said oil analyst Phil Flynn at Alaron Trading Corp. in Chicago.

Light sweet crude for August delivery rose 18 cents to $60.80 a barrel in morning trade on the New York Mercantile Exchange. On London’s International Petroleum Exchange, August Brent fell 20 cents to $58.62 a barrel.

The front-month Nymex crude futures contract had its peak settlement of $61.28 on July 6, when storm-related power outages disrupted some oil production and refining operations in the Gulf of Mexico, stirring up fears about lost output at a time of strong global demand.

Hurricane Dennis did not cause the extent of damage that the market was braced for. A non-producing oil platform operated by BP Plc was left listing in the deep sea in the storm’s wake, however – an image that was broadcast on television and which only served to solidify traders’ worries about what could happen.

"If we get a repeat of the huge devastation Hurricane Ivan caused last year, we are going to see prices spike considerably higher, led by fears over product supply," said Orrin Middleton, energy analyst with Barclays Capital in London.

"Given the current market dynamics, we simply cannot afford a repeat of Hurricane Ivan," Middleton said.

One factor moderating prices somewhat on Wednesday was the monthly forecast by the Paris-based IEA, which revised its global demand growth outlook down by 200,000 barrels a day to 1.58 million barrels a day in 2005, citing a weaker outlook for China and the United States.

However, the energy watchdog expects the pace of Chinese demand growth to pick up again in 2006.

In its weekly supply report, the Energy Department said crude oil inventories fell by 3.9 million barrels to 321 million barrels, or 6 percent above year ago levels. Gasoline stocks declined by 2.7 million barrels to 212.6 million barrels, or 1 percent above last year.

The biggest surprise, analysts said, was the 3.2 million increase in the supply of distillate fuel, putting inventories 4 percent above year ago levels at 120.4 million barrels.

"The build in distillates was extremely heartening to traders" because of surging demand for diesel and concerns that refiners would not be able to satisfy it while meeting motorists needs for gasoline, Flynn said.

"The refiners are proving them wrong," he added.

Also on Wednesday, traders watched Tropical Storm Emily, which was about 260 miles southeast of Barbados, packing maximum sustained winds of 60 mph, the National Hurricane Center in Miami said.

Hurricane Dennis rolled through the Gulf of Mexico last week, and while it caused minimal damage, the U.S. Minerals Management Service said the storm forced a halt in production of nearly 5 million barrels of crude from July 8 to July 12 – less than 1 percent of the region’s annual output.

Oil prices are around 55 percent higher than a year ago, but are still below the all-time inflation-adjusted high of $90 a barrel set in 1980.

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Associated Press Writers Edith Balazs in Budapest, Hungary and En-Lai Yeoh in Singapore contributed to this report.