Oil Retreats as Traders Take Profits

Tue Jul 13, 2004

LONDON (Reuters) - U.S. oil prices fell on Tuesday as dealers pocketed profits from a $5 rally since the end of June that hit the buffers on Monday.

U.S. light crude (CLc1: Quote, Profile, Research) dropped 45 cents to $39.05 a barrel after hitting a five-week peak at $40.75 a barrel during Monday trade when the volatile U.S. gasoline market beat a sharp retreat. London Brent crude eased 37 cents to $36.26 a barrel.

"Short-term, the market looks well supplied but it's hard to go short in the market and even if prices go down I think there'll be a floor at $35," said Tony Nunan, manager at Mitsubishi Corp.'s international petroleum business in Tokyo. U.S. prices peaked at $42.45 in early June.

Even though crude oil inventories worldwide are comfortable compared to previous years, strong global oil demand and sparse spare capacity has left little room to cope with supply disruptions.

"We're not out of the woods yet on gasoline in the United States and we're now in pre-season buying for heating oil," said Nunan.

The International Energy Agency on Tuesday revised up its forecast for world oil demand growth in 2004 by 180,000 bpd to 2.49 million bpd, the fastest growth since 1980.

It said growth would ease in 2005 to 1.8 million bpd but again outpace non-OPEC supply growth, leaving the onus on OPEC to deliver the difference.

Analysts expect weekly U.S. government data, out at 1430 GMT on Wednesday, to show a small rise in stockpiles.

A Reuters survey of seven analysts predicted U.S. crude inventories would rise 1.4 million barrels in the week to July 7. Projections for gasoline were for stocks to rise a modest 500,000 barrels with distillates that include heating oil to go up 2.1 million barrels.

Only Saudi Arabia, the world's biggest exporter, has any significant spare production capacity with the other OPEC producers pumping flat out and Iraq's output recovering from war damage.

The Organization of the Petroleum Exporting Countries is expected to raise official production limits by 500,000 barrels a day (bpd) from August 1, but the increase will have little impact on actual supplies as OPEC is already supplying substantially more than formal quota allocations.

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