Oil holds at $66 ahead of US fuel stocks

LONDON (Reuters) – Oil held at $66 a barrel on Wednesday
ahead of U.S. data that is expected to show another drop in
gasoline stocks in the world’s biggest consumer.

But signs that record prices are beginning to stoke
inflation and crimp economic growth could slow a rally that has
catapulted oil 52 percent higher this year, analysts said.

Doubts that producers can pump enough oil to satisfy world
demand has lifted oil toward the $82 inflation-adjusted average
in 1980, the year after the Iranian revolution.

“The prices are now clearly at the level where we have to
start thinking about the effect on demand,” said Tony Nunan, a
manager at Mitsubishi Corp’s petroleum business division.

“But it will take time for the high prices to slash oil
demand… You just cannot stop using oil, and people in the
United States cannot stop driving.”

U.S. crude oil was 8 cents down at $66.00 a barrel at 1110
GMT, having hit a record high of $67.10 last week. London Brent
crude was 17 cents lower at $64.91.

U.S. Wal-Mart Stores Inc., the world’s biggest retailer,
said on Tuesday rising oil prices would cut into expected
earnings this year as retail gasoline prices, which hit a
record-high of $2.55 a gallon last week, eat into incomes.

Economic data showed that higher costs were being passed
through to consumers, with U.S. July consumer prices rising at
their fastest rate in three months and British inflation at its
highest level since comparable records began in 1997.

U.S. oil prices have averaged $53.60 a barrel this year,
about $12 more than in 2004.

FRESH DATA

Oil data later on Wednesday will show how the United States
is faring after more than a dozen refinery problems hit
operations in the final month of the summer driving season.

Gasoline stocks were seen dipping 1.3 million barrels,
widening a supply deficit versus last year’s levels, a Reuters
survey found. Last week stocks fell to 3.7 percent below 2004,
triggering a fresh rally in the motor fuel.

“If the gasoline draw exceeds two million barrels, then we
would anticipate an across-the-board rally,” analysts at Refco
said. “We are not yet at a point where we are prepared to
declare the energy rally dead given that U.S. demand remains
above average.”

Crude inventories, by contrast, were bolstered by refinery
constraints and heavy imports, rising by one million barrels
and adding to their surplus, the survey found.

Stocks have been inflated by the highest OPEC production in
a quarter century, but fears over refinery constraints and
limited spare capacity has kept oil prices supported.

OPEC nudged up its forecast for world oil demand growth in
2006 on Wednesday and predicted OPEC supplies would have to
offset lower-than-expected output from non-OPEC countries. The
revision mirrored a similar move last week by the International
Energy Agency.