Oil Prices Tumble As US Crude Inventories Increase
CRUDE futures tumbled in London and New York yesterday after a weekly inventory report showed a rise in US oil supplies.
Crude oil inventories grew by 300,000 barrels last week to 321.1 million barrels, or 11percent above year-ago levels, according to US Department of Energy figures.
However, petrol stocks fell more than expected, sending gasoline futures surging to record levels before profittaking set in.
West Texas light, sweet crude plunged dollars-2.53 to dollars- 63.55 a barrel at one stage on the New YorkMercantile Exchange.
North Sea Brent on London’s International Petroleum Exchange retreated dollars-2.30 to dollars-62.78 a barrel. Brent also reached record levels last week.
US analysts had been expecting a rise in both crude and gasoline stocks, but the market had priced in a series of refinery glitches of last week, leading traders to take profits following the report, said Phil Flynn, analyst at Alaron Trading Corp, a US brokerage.
Wall Street economists said prices would continue declining in the short term, as the summer driving season draws to an end and the United States shows healthy stocks of crude.
However, bullish sentiment was expected to return in the long term with the approach of winter in the northern hemisphere.
“We just have to get used to the probability that oil is trading in a much higher range and for much longer than previously expected, and an upper price ceiling is almost impossible to determine at this moment, ” said Alex Scott, oil analyst at Seven Investment Management in London.
Amonthly report released by the Organisation of Petroleum Exporting Countries said the pace of oil demand is expected to rebound next year, supporting long-term bullish arguments.
“Average world oil demand for 2006 is projected to grow by 1.6 million barrels a day, or 1.9percent, to average 85.2 million barrels a day, ” the Opec report said. “This slightly higher forecast is due to the slightly more optimistic view of the world economy for the coming year.”
Chief economist Richard Dingwall Smith of Scottish Widows Investment Partnership said high oil prices are driven by fears of future energy shortages – amounting to a supply shock – rather than the strength of global economic activity. “It is increasingly hard to argue that high oil prices are being driven by the strength of global activity, given that oil consumption has slowed significantly, ” he said.
“Oil prices are now being driven by fears of future energy shortages . . . There is concern that a serious energy crisis could emerge, “Dingwall Smith added.