Oil Futures Up on Oil Demand Projection
BUDAPEST, Hungary – Crude futures gained Thursday after the U.S. Department of Energy gave a mixed picture of U.S. petroleum stocks but suggested that it may raise its 2005 projection for oil demand.
Analysts said that tightening crude supplies in the United States, the world’s largest oil consumer, heighten supply-related fears and could push prices to new highs.
“The market remains very volatile and even minor events in key regions of the world will draw immediate reactions from market players,” said Muhammad Ali Zainy, an analyst with the Center for Global Energy Studies in London.
Light, sweet crude for September delivery was up 30 cents to $59.41 a barrel on the New York Mercantile Exchange.
Heating oil gained more than half a cent to $1.6240 a gallon, while gasoline was down nearly half a cent at $1.7120 a gallon.
In London, the September contract for Brent crude on the International Petroleum Exchange gained 19 cents to $58.20 a barrel.
Oil prices are about 40 percent higher than a year ago.
The U.S. weekly inventory data, released Wednesday, showed a decline in domestic inventories of crude oil last week but an increase in the supply of distillate fuel, which includes heating oil and diesel. But the weekly report showed a somewhat larger-than-expected drop in the nation’s commercial supply of gasoline.
The Department of Energy’s statistical office, the Energy Information Administration, said Wednesday it revised upward its total demand figures for last year and said it could do the same for this year as well.
“Revisions are the norm,” the EIA said, adding that “higher final 2005 numbers are likely.”
That seems to run counter to recent projections by the Paris-based International Energy Agency and the Organization of Petroleum Exporting Countries, which have cut forecasts for world oil demand growth, citing weaker-than-expected consumption in China that sent prices downward.
“Recent oil prices can be largely, if not completely, explained by the lack of such cushions in a world with significant potential for supply disruptions,” the EIA said.
“The 2004 revision comes at a time when demand growth appears (to some) to be unchecked by higher oil prices,” the EIA said in its report. “Because this seems counterintuitive to some analysts, there may be some tendency to view revised 2004 data-based comparisons as signaling a demand slowdown, partially attributable to high oil prices.”
The midweek data snapshot showed crude oil stocks fell by 2.3 million barrels to 317.8 million barrels, or 7 percent above year-ago levels. Gasoline inventories declined by 2.1 million barrels to 209.2 million barrels or about 1 percent below year-ago levels.
As expected, the supply of distillates, which group heating oil, jet fuel and diesel, grew by 3.1 million barrels to 125.8 million barrels, or 5 percent higher than last year.
“The evidence is that U.S. summer holiday makers have been doing a fair bit of driving,” said David Thurtell, commodities strategist at Commonwealth Bank in Sydney, Australia.
The market has been trying to assess the impact of China’s decision late last week to cut its currency peg to the U.S. dollar and instead to weigh it against a basket of currencies. Some analysts believe the move could spur demand because imported crude will be cheaper in yuan terms, while others say it could dent China’s economic growth and slow its rising appetite for crude.
China is the world’s second largest consumer of crude behind the United States.
Prices would have to surpass $90 to breach the all-time inflation adjusted record set in 1980.
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Associated Press Writer En-Lai Yeoh in Singapore contributed to this report.