Reuters
Oil Firm at $41 as Energy Stocks Shrink
Wednesday May 26, 12:57 pm ET
By Toby Reynolds
LONDON (Reuters) - U.S. prices held strong near $41 on Wednesday as shrinking American gasoline inventories reinforced fears for a supply crunch in the world's biggest oil consuming nation.
Weekly U.S. stock data, showing no rise in U.S. national crude inventories and tighter gasoline, offered no prospect of any significant reversal of the oil price spike.
U.S. light crude futures (CLc1) by 1645 GMT were off eight cents at $41.06 a barrel. London Brent (LCOc1) was up two cents at $37.46.
Oil prices are up 27 percent this year fueled by world economic growth, supply security fears and U.S. refinery bottlenecks.
Prices have failed to respond even to leading OPEC producer Saudi Arabia's promise to raise output sharply in June and pump at full capacity if necessary.
"Market concerns have moved beyond concerns about crude oil capacity alone and are now a function of a combination of upstream, logistical, downstream and geopolitical factors," said analyst Paul Horsnell of Barclays Capital.
Fears are that investment funds, long in oil for many months, will wait to see firm evidence of inventory builds in key consumer economies before relaxing their bet on continued oil strength.
BUBBLE?
Some blame speculators.
"What we have here is a speculative bubble...There is no real shortage on the markets. That is the reality," European Energy Commissioner Loyola de Palacio told a news conference in Brussels.
Weekly U.S. government data released by the Energy Information Administration (EIA) showed no impact on motor fuel demand from record high retail prices.
U.S. gasoline demand in the year to date is up 2.9 percent at 8.925 million barrels a day, leaving a five-million-barrel, 2.5 percent, inventory deficit versus last year, the EIA said.
This year's weak dollar has contributed to the attraction of oil for investors. A renewed decline to $1.21 on Wednesday versus the euro was the dollar's lowest in three weeks. The dollar hit a low against the euro in February of just over $1.28.
Saudi Arabia, the world's top exporter, pledged at the weekend to raise June production by 10 percent to 9.1 million barrels per day (bpd).
The unilateral move appeared to upset some cartel members who were unwilling immediately to endorse a Saudi plan to legitimize group production above formal output limits by lifting cartel quotas by 2.0-2.5 million bpd.
OPEC's second biggest producer, Iran, has said it wants to raise quotas at an as yet unspecified volume. But it has not yet backed the Saudi proposal.
"Any OPEC quota increase should be based on consensus, be cautious, limited and temporary," said Iranian Oil Minister Bijan Zanganeh.
Some leading non-OPEC producers say they are trying to squeeze out extra oil.
On Tuesday Mexico, the world's eighth-largest exporter, said it would boost crude exports to 1.95 million bpd this year, up from 1.88 million bpd.
Russia said it would also try to raise exports to take advantage of high world market prices
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