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Oil Prices Ease, but Remain Close to $60

Posted on: Tuesday, 21 June 2005, 09:00 CDT

BUDAPEST, Hungary - Oil prices eased off their record highs Tuesday, but stayed close to the $60 threshold on persistent global supply fears as the market once more brushed aside another OPEC pledge to add barrels.

Traders were also watching the U.S. Department of Energy petroleum data snapshot to be released Wednesday for consumption clues and a threatened strike in Norway that could knock a million barrels off the supply chain from the world's No. 3 exporter.

"With worries about OPEC's limited spare capacity, it doesn't really matter whether we see problems emerging in Nigeria or Norway, even the slightest fear will keep the bear out of the market," said Orrin Middleton, an energy analyst at Barclays Capital in London.

"What seems to preoccupy people most is at what stage prices will break the $60 threshold," Middleton said.

Light, sweet crude for July delivery fell 33 cents to $59.04 a barrel in electronic trading on the New York Mercantile Exchange ahead of the contract's expiration later Tuesday.

Prices had climbed 90 cents to settle at $59.37 a barrel on Monday, a record close on the Nymex, where oil futures have been traded since 1983.

Heating oil fell 1 cent to $1.6525 a gallon Tuesday, while gasoline was down one and a half cents to $1.6310 a gallon.

On London's International Petroleum Exchange, Brent crude for August delivery was down 27 cents to $58.05 a barrel after the contract set a new high of $58.58 on Monday.

On Wednesday, the U.S. releases its midweek petroleum stocks report, a key market mover. Analysts surveyed by Dow Jones Newswires expects crude inventories to fall for a fourth time in five weeks, which is likely to send prices higher again.

"We'd have to see a substantial increase in U.S. inventories, at least more than a 5 million barrels per day increase in crude, and a good increase in gasoline stocks before the price could ease back," said ANZ Bank energy analyst Daniel Hynes from Melbourne, Australia.

While Nymex oil futures are more than 50 percent higher than a year ago, they are still below the inflation-adjusted high above US$90 a barrel set in 1980.

"With sentiment so bullish, traders are really focusing more on supply side issues, which could put pressure on the prices," said Hynes. "We're going to see oil prices shoot past US$60 over the next day or two. There's little in the way of issues that could bring prices down."

Sheik Ahmed Fahd Al Ahmed Al Sabah, president of the Organization of Petroleum Exporting Countries, said Monday he would consult cartel members to raise the group's production quota another half million barrels if prices remained at these levels at the end of the week.

Last week the oil cartel agreed to raise its official production ceiling to 28 million barrels, starting July 1, but that failed to soothe traders because OPEC's output is already exceeding that level as producers seek to cash in on high prices. Including Iraq, which is not bound by the quota system, OPEC is pumping close to 30 million barrels a day, or about 35 percent of global demand.

Supply fears and limited excess capacity have been a major driving force in pushing prices upward all year.

Another development brokers were watching was the threat of a strike by oil workers in Norway. A strike could begin as soon as Wednesday because of a salary dispute.

"If you take off 1 million barrels a day in this market, it's going to get ugly," said oil broker Tom Bentz of BNP Paribas Commodity Futures in New York. "Let's just hope it doesn't happen."

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Associated Press Writer En-Lai Yeoh in Singapore contributed to this report.

Source: Associated Press/AP Online

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