Oil prices close to matching record

Oil prices were steady on Thursday after retreating from levels just cents below the record trading high established in the previous session on an unexpected drop in United States crude inventories.

By afternoon in Europe, the contract was up 25 cents, fetching $111,12 a barrel in electronic trading on the New York Mercantile Exchange.

While still high, that was down substantially from the $112,10 a barrel it had reached just a few hours before—a level just 11 cents off the record.

More negative US economic data appeared to have taken some of the steam out of oil’s precipitous price rise. The Commerce Department reported the first decline in oil imports in a year—a clear sign that high prices and an economic downturn were hurting crude sales.

Still the US trade deficit rose in February for the second straight month, with a big jump in imports of foreign-made cars offsetting the oil figures.

The US Energy Information Administration’s inventory report, closely watched by the market, showed on Wednesday that crude stocks fell by 3,2-million barrels last week.

“The crude inventory draw was a big surprise to the market, which had actually expected an increase of two to three million barrels.
It was a substantial drawdown,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Analysts surveyed by Dow Jones Newswires had expected, on average, an increase of 2,4-million barrels.

The decline in crude stockpiles pushed light, sweet crude for May delivery up $2,37 to settle at a record $110,87 a barrel on the New York Mercantile Exchange on Wednesday. It rose as high as $112,21 a barrel during the floor session, surpassing the previous trading record of $111,80, set last month.

Some analysts cautioned against reading too much into last week’s drop in crude supplies, noting a sharp drop in imports over the same period.

“Imports have been somewhat erratic. I would say this one week’s result is not a trend,” Shum said. “It might be compensated by a large import next week.”

Vienna’s JBC Energy, in its daily newsletter, also suggested the price spike was an overreaction, noting that “at 316-million barrels, stocks are perfectly in line with the five-year average”.

The Energy Information Administration also said gasoline and distillate supplies—which include diesel fuel and heating oil—fell more than expected last week, although analysts said gasoline, or petrol, inventory levels remained healthy.

“Gasoline inventories are higher than the historical average at this time of the year, and gasoline fundamentals are actually weakening in the US, so there is really no need to worry about supply being too tight,” Shum said.

Prices have shown little inclination to fall in response to eroding demand. With gasoline supplies shrinking and the northern-hemisphere summer approaching—when demand, while weaker than last year, will be stronger than it is now—consumers may have to wait until later in the year for price relief.

Also supporting oil prices was the release of a gloomy report by the International Monetary Fund on Wednesday that said the US is headed for a recession, dragging world economic growth down along with it.

“Normally with bearish economic data you would see oil pricing drop, but these days the trading relationship is: bad economic news means bullish movements in oil,” Shum said.

Financial markets interpret grim news as indications that the US Federal Reserve will further cut interest rates, which would drive the US dollar down, he said. A weaker dollar attracts financial investors to oil and other commodities as a hedge against inflation.

Brent crude rose 61 cents to $109,08 a barrel on the ICE Futures Exchange in London.—Sapa-AP

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