Tags: Oil | Prices

Oil Dips 2 Percent on High Supplies, Flat Forecast

Wednesday, 23 Jun 2010 01:00 PM

U.S. crude oil fell nearly 2 percent on Wednesday, as a big increase in domestic inventories cast doubt on demand prospects and a downturn in a broad array of commodities diminished risk appetite.

The Paris-based International Energy Agency forecast that crude supplies would be comfortable for five years, further stoking bearish sentiment.

In early trading, oil tumbled to its biggest loss in two weeks. But the market pared losses after U.S. government data showed a much smaller build in crude oil inventories than that reported by an industry group late on Tuesday.

The government data also showed improved weekly demand for gasoline and distillates over a four-week period, helping the crude prices move off their early lows.

U.S. crude for August delivery fell $1.20, or nearly 2 percent, to $76.65 a barrel at 1:35 p.m. EDT, after hitting a session low of $75.17. It was the second straight day of decline.

ICE Brent crude futures for August fell $1.53 to 76.51 a barrel.

The U.S. Energy Information Administration said crude oil inventories rose by 2 million barrels last week, contrary to analysts' expectations for a drop of 800,000 barrels. While the increase was unexpected, it was far smaller than the 3.7 million barrel build in the American Petroleum Institute's weekly report.

The government report showed signs demand is improving in the world's largest energy consumer. Gasoline inventories fell by 800,000 barrels, with demand over the past four weeks up 1.2 percent over the comparable period last year.

U.S. distillate stocks rose by 300,000 barrels, against analyst expectations for a 1.3 million barrel build.

Distillate demand, which includes diesel, heating oil and jet fuel, is up by almost 12 percent over the past four weeks against the same period last year as an improving economy boosts consumption.

"The EIA crude build was less bearish than the API's increase but the EIA's data on gasoline and distillates appears to be bullish as demand is rising, though not as strong as what we've seen at this time of the year two years ago, before the economic crisis set in," said Mark Waggoner, president, Excel Futures in Bend, Ore.

On the broader economic front, data showed U.S. single-family home sales in May tumbled by more than expected to a record low. This stoked concerns about the pace of the economic recovery, adding pressure on oil futures.

From a six-week high of $78.92 on Monday, U.S. crude prices have fallen nearly 5 percent to Wednesday's low. But they are up about 21 percent from the $64.24 low hit on May 20, though still about 11 percent lower than the 19-month peak of $87.15 hit on May 3, before the onset of the European debt crisis.

The average daily global oil consumption is expected to grow by 1.2 million barrels each year between 2009 and 2015 supply will largely keep pace, the International Energy Agency (IEA) said in its annual medium-term oil and gas report.

"For the next few years, the oil market is marked by more comfortable spare capacity than envisaged last year, and the duration of the current gas glut is set to last beyond 2013, at least in some regions. Yet, we shouldn't be complacent," the Paris-based IEA said.

Global oil production capacity was seen hitting 96.5 million bpd by 2015 from 91 million bpd currently, but potential delays to new deepwater oil projects following the accident at BP's oil rig in the U.S. Gulf of Mexico may tighten supplies.

On Tuesday, a U.S. judge blocked the Obama administration's six-month ban on deepwater drilling imposed in the wake of BP PLC's Gulf of Mexico oil spill, but the White House said it would appeal against the ruling.

On Wednesday, U.S. Interior Secretary Ken Salazar said he will issue a new moratorium on offshore drilling deeper than 500 feet with stronger explanation why it is needed, to meet the judge's objections.

A tropical wave south of Haiti strengthened slightly overnight and could develop into a tropical depression over the next couple of days, the U.S. National Hurricane Center said.

If the storm develops and turns north to head for the area between Mexico's Yucatan Peninsula and western Cuba, as suggested by some models, it could disrupt clean-up operations and oil production in the Gulf of Mexico.

© 2017 Thomson/Reuters. All rights reserved.

   
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U.S. crude oil fell nearly 2 percent on Wednesday, as a big increase in domestic inventories cast doubt on demand prospects and a downturn in a broad array of commodities diminished risk appetite. The Paris-based International Energy Agency forecast that crude supplies...
Oil,Prices
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2010-00-23
Wednesday, 23 Jun 2010 01:00 PM
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