Oil Prices Creep Higher, Test $68 Mark
Oil prices crept higher to settle at a new high Thursday, taking their cue from a rally in gasoline futures. But analysts said the upward momentum was somewhat bewildering given the easing of concerns about a storm expected to move into the Gulf of Mexico.
Tropical Storm Katrina trudged toward Florida’s southeastern coast on Thursday and forecasters expected it to strengthen to a weak hurricane before making landfall overnight. But the U.S. National Hurricane Center said after the storm moves into the Gulf of Mexico, it could turn to the north and eventually strike the state’s Panhandle early next week – a path that would keep it away from the heart of the oil and gas producing regions of the Gulf.
"Today was a golden opportunity to sell off," said analyst Phil Flynn at Alaron Trading Corp. in Chicago. "One would think that with Katrina going off in a different direction, the market would too. But it didn’t."
On Wednesday, fears that Katrina would disrupt oil and natural gas production in the region was the main catalyst pushing October crude futures on the New York Mercantile Exchange to a record close of $67.32 a barrel.
"The market really went bonkers about this storm, even more than usual," Flynn said. "That tells me this market is looking for excuses to drive higher."
Crude futures gained 17 cents to settle at $67.49 on Thursday, the highest closing price since oil began trading on Nymex in 1983. On an inflation-adjusted basis, oil prices would need to hit about $90 a barrel to match the highs of 25 years ago.
Crude futures briefly touched $68 a barrel in overnight electronic trade, reflecting the market’s longstanding jitters about rising demand and the limited amount of excess production capacity around the world. Stoking bullish sentiment was a U.S. supply report that showed a decline in gasoline stocks and China saying its crude imports spiked in July. Traders also eyed a refinery snag in California.
Still, the fear of supply troubles exceeds the actual tightness in the market, traders said.
"From a purely fundamental basis, the market shouldn’t be within $20 of the crude price that we’re seeing," said oil broker Aaron Kildow of Prudential Financial. "But people are reluctant to sell."
Gasoline futures surged 3.79 cents to $1.9637 a gallon on Nymex, where heating oil rose less than a penny to $1.8695 a gallon.
The International Monetary Fund said Thursday that Asian growth could be derailed by high oil prices, and warned of high inflation in Indonesia and the Philippines.
IMF managing director Rodrigo de Rato warned that high oil prices posed a significant risk to global economic expansion, and said they were not likely to fall in the near term.
He said both Indonesia and the Philippines need to be vigilant to curb the inflationary threat of high oil prices. In Indonesia, oil prices have pulled the local currency to a 41-month low and have slowed economic growth.
The price spike in Asian trading also came after China released data showing that its crude imports rose 15 percent in July from a year earlier. In the first seven months of this year, China’s crude oil imports have risen 5.4 percent compared to a year ago.
The United States and China are the world’s top two consumers of crude, and China’s growing appetite for crude is said to be one of the key reasons for the world’s shrinking excess capacity to offset any lost output.
"The market sentiment is not whether crude will one day reach $70, the question is when," said Victor Shum, energy analyst at Texas-based consultants Purvin & Gertz in Singapore. "We are now heading into the fourth quarter, a seasonally higher demand period."
Market focus is now shifting to heating oil and natural gas as demand for these products usually peaks in the winter.
On Wednesday, the U.S. Energy Department said domestic inventories of gasoline fell by 3.2 million barrels last week to 194.9 million barrels, or 7 percent below year-ago levels.
U.S. supplies of crude oil grew by 1.8 million barrels to 322.9 million barrels, or 13 percent above year-ago levels, the agency said. The supply of distillate fuel, which includes heating oil and diesel, increased by 1.4 million barrels to 132.5 million barrels, or 4 percent above last year’s level.
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Associated Press Writers Brad Foss in Washington and En-Lai Yeoh in Singapore contributed to this report.