News

21.08.2008 08:17

Aug 21. In global petroleum market news, the price of oil bounced back near USD 115 a barrel on Wednesday, as traders shrugged off a massive build in U.S. crude inventories and a stronger dollar and focused on possible supply threats. Light, sweet crude for September delivery rose 45 cents to USD 114.98 a barrel NYMEX, after rising as high as USD 117.03 before the inventory data was released, falling as low as USD 112.61, and then rebounding again. The September contract expired on Wednesday; the October contract finished up USD 1.01 at USD 115.56 a barrel. Brent crude on the ICE futures exchange in London jumped USD 1.11 to USD 114.36 a barrel. It was a volatile day for energy prices, which initially retreated after the U.S. Energy Department said a big gain in imports drove crude inventories up by a hefty 9.4 mn barrels in the week ended August 15. This figure came in much higher than the average consensus forecast, which was calling for a 1.7 mn-barrel build. But there was also some bullish supply news. Gasoline inventories drew down by a much larger-than-expected 6.2 mn barrels to below-average levels, the EIA said, while distillates — which include heating oil and diesel fuel — showed a lower-than-expected build. Gasoline and heating oil prices, like crude, ended the session higher. And given that the hurricane season is not even halfway over, traders remain jittery about the possibility of storms striking oil facilities in the Gulf of Mexico. On the political front, oil prices rose on Wednesday after Russia responded angrily to a U.S. missile shield agreement with Poland, raising the threat of a supply disruption from the huge energy producer. Russia, the world's second largest oil producer, said Wednesday it would respond with more than just a diplomatic protest to a deal between Poland and the United States to base part of a U.S. missile defense system on Polish soil. The statement described the missile shield as "one of the instruments in an extremely dangerous bundle of American military projects involving the one-sided development of a global missile shield system''. Also, ongoing tension between Russia and Georgia, where a key oil pipeline is located, kept a floor under prices. Since mid-July, crude prices had pulled back by about USD 35, or nearly 25%, from their July 11 trading record of USD 147.27. The retreat arrived as the dollar recovered ground against other major currencies, and as evidence emerged that Western Europe's and Japan's economies are weakening alongside that of the United States — which could put a damper on global energy demand. Gasoline demand averaged about 9.5 mn bpd over the last four weeks, or 1.6% lower than the same period last year, the EIA said Wednesday. But Goldman Sachs analysts on Wednesday pointed out that while the dollar and oil have been correlating recently, there are other factors that affect the price of oil besides the dollar. "We reiterate that fundamentals in the oil market suggest a return to a rising oil price environment," wrote Goldman analyst Giovanni Serio. In addition to the hurricane season and political confrontation, developing economies are still expected to boost their energy use in the coming years and keep oil prices high. In our opinion, the price of oil — still more than 60% higher than a year ago — appears to be consolidating at current levels. The AccuWeather.com Hurricane Center said Wednesday that it predicts Tropical Storm Fay will make a third landfall Thursday morning along the Southeast coast of Florida. Only a couple forecasters have predicted that Fay will bounce back toward key facilities in the Gulf of Mexico, but there are thunderstorms in the eastern Atlantic that some traders are betting will develop into tropical storms. And with the Organization of Petroleum Exporting Countries meeting in early September, supply concerns could rise further if countries decide to lower their output in response to slower demand. Venezuelan Oil Minister Rafael Ramirez said he might propose an output cut at the next OPEC meeting. Moving forward, the fact that oil prices surged in the face of a massive build in crude inventories and another rebound in the U.S. dollar was a significant development which could mean the bearish streak is petering out. The market dealt with two bearish factors yesterday, but still managed to close slightly higher. If the selloff comes to an end we could see a return to supply concerns heading into OPEC’s September meeting.