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Oil holds at $66 ahead of US fuel stocks

Posted on: Wednesday, 17 August 2005, 06:27 CDT

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.

Source: REUTERS

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