Oil Prices Climb on Mixed U.S. Stock Data

Wed Jul 21, 2004

LONDON (Reuters) - World oil prices wavered briefly but then forged higher on Wednesday after an unexpected fall in U.S. crude oil stocks overshadowed healthier gasoline and heating oil inventories, traders said.

Easing concerns about product tightness in the world's biggest energy consumer were countered by the surprise drop in crude supplies, keeping the market on edge over a taut global supply chain and Middle East security.

U.S. light crude for September delivery made new highs up 56 cents at $41 a barrel, partly reversing a $1 fall on Tuesday, when the previous front-month moved briefly to within 15 cents of the all-time high for U.S. crude futures at $42.45.

London benchmark Brent crude was up 54 cents $37.55 a barrel in thin trade.

The market initially fell about 30 cents in early afternoon trade after the U.S. government's Energy Information Administration (EIA) reported an unexpected rise in weekly gasoline inventories and a greater than anticipated build in distillate stocks.

Those figures briefly overshadowed a fall in crude oil supplies of 3.6 million barrels to 299.3 million barrels, which was in sharp contrast to analysts' forecast for a modest build.

Crude oil stocks were below 300 million barrels for the first time in two months, but remain more than five percent higher than a year ago.

"People have been more concerned about products than crude," said Kyle Cooper, analyst with Citigroup Global Markets.

Gasoline inventories are now five million barrels or 2.5 percent higher than this time last year, giving traders greater confidence that supplies will ride out the last of the peak summer driving season.

"We're home free for the summer," said Jim Ritterbusch, president of Ritterbusch and Associates.

U.S. gasoline consumption accounts for roughly 12 percent of global oil demand during the summer, making it a barometer for overall strength in demand.

Implied gasoline demand fell five percent compared to the previous report, the EIA said.

Gasoline prices were down 82 points at $1.2380 a gallon on Wednesday afternoon, having fallen six percent in the last week.

A 1.7 million barrel increase in distillate stocks also soothed worries that heating oil supplies were not rising quickly enough to meet wintertime demand if a cold snap were to descend quickly on the U.S. Northeast.

Oil prices have stayed above $35 a barrel for most of the year as demand has shown the strongest growth for more than two decades, while producers have turned up production to almost full tilt, leaving little leeway for disruptions to supply.

Fresh data from Chinese Customs on Wednesday showed June crude imports at a record of more than 11 million tonnes, while the country's buying for the first six months rose 39 percent from a year ago to a little over 61 million tonnes.

China, which imports roughly one-third of its crude oil needs, overtook Japan last year to become the second biggest oil consumer after the United States.

Strong demand has heightened concerns over a lack of spare capacity at a time of geopolitical tensions in Iraq, Saudi Arabia, Nigeria, Venezuela and Russia -- all major oil-producing nations.

The OPEC producers' cartel, which canceled a policy meeting scheduled for Wednesday, will raise its official output ceiling by 500,000 bpd from August 1 to 26 million bpd, although actual group production is estimated at roughly two million bpd above that level.

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