Oil Prices Post Gains After Big Drop

BUDAPEST, Hungary – Crude oil prices posted gains Thursday, a day after plunging nearly $3, amid renewed concerns about gasoline shortages and supply disruption in Ecuador and Nigeria.

"We do not believe that the oil market has yet fully convinced itself that more than $60 is sustainable in terms of growth, and until that occurs, any move much higher is likely to be rather fleeting," Paul Horsnell, head of energy research at Barclays Capital in London, wrote in a research note.

The front month September contract for light, sweet crude gained 26 cents to $63.51 a barrel on the New York Mercantile Exchange in midday European electronic trading. The contract slipped to a session low of $62.80 in earlier trading.

On Wednesday, the contract slid $2.83 to settle at $63.25, amid selling from hedge funds and other speculators after the market’s recent rally, which saw prices rise as high as $67.10 Friday.

Gasoline was up less than half a cent at $1.8940 a gallon, while heating oil gained nearly 2 cents to trade at $1.8000.

In London, October Brent on the International Petroleum Exchange was trading at $62.98 a barrel, up 42 cents.

Analysts said the sharp drop in oil prices in U.S. trading hours was a correction of a market many perceive as overbought.

Renewed concerns of supply shortages were sparked by Wednesday’s U.S. midweek petroleum supply report showing a large decline in gasoline inventories.

"This is what is currently driving prices: fears of future energy shortages, which would now be capable of giving the world economy a considerable push downwards," said John Kilduff, senior vice president at US brokerage Fimat Inc.

The U.S. Department of Energy said the nation’s supply of gasoline fell by 5 million barrels in the week ending Aug. 12, putting inventories at 198.1 million barrels, or 12 percent below last year. Crude oil inventories grew by 300,000 barrels last week to 321.1 million barrels, or 11 percent above year-ago levels.

The report is a yardstick for determining demand and usage levels from the world’s largest energy consumer.

But some analysts said earlier concerns about insufficient gasoline supplies, compounded by a spate of U.S. refinery breakdowns, were easing as more refineries resumed operations and no new outages were reported this week.

Oil prices rose nearly $10 a barrel over the three weeks that ended Friday, sending crude oil prices up 40 percent compared to a year ago – but still below the inflation-adjusted high of $90 a barrel set in 1980.

High demand, primarily from China and the United States, has been blamed for limited excess capacity globally, which analysts said left little wriggle room in the event of a prolonged outage.

But the American Petroleum Institute reported Wednesday that U.S. oil demand fell 3 percent in July compared to the same month last year, while gasoline deliveries fell 0.8 percent, an indication of slowing demand.

Meanwhile, Ecuador’s government Thursday declared a state of emergency in two Amazon provinces to quell protesters who have severely disrupted oil production to press for greater spending on infrastructure and social programs.

Officials at state-run oil company Petroecuador said crude production had fallen 90 percent, from 202,500 barrels to 20,000 barrels, creating losses of around $12 million in revenue between Monday and Wednesday.

News of output disruptions at Shell’s Agbada flow station in Nigeria triggered by protests from villagers was also seen as a potential bullish factor.

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Associated Press Writer Gillian Wong in Singapore contributed to this report.