Oil Rises Above $59 for First Time on Concern About Inventories
June 20 (Bloomberg) -- Crude oil rose above $59 a barrel in New York for the first time on speculation refiners won't keep pace with fuel demand, reinforcing concern record energy prices may hinder global economic growth.
``I definitely see $60 on the horizon and $50 a fond memory,'' Gal Luft, executive director of the Washington-based Institute for the Analysis of Global Security, said in an interview. ``The market is extremely tight and there's absolutely no indication that things are going to change.''
Oil surged to a record $59.18 a barrel on the New York Mercantile Exchange on concern producers and refiners may strain to meet increased heating fuel demand in the northern hemisphere winter. China, which has led global growth in oil demand for the past three years, last week reported a bigger-than-expected increase in industrial output for May, prompting JPMorgan & Chase Co. to raise its growth forecast for the nation.
Crude oil for July delivery rose as much as 71 cents, or 1.2 percent, to the highest since the contract began trading in 1983 on the exchange. It was at $59.06 at 1:32 p.m. Singapore time. Prices are 56 percent higher than a year ago.
Concern
Rising prices are fueling concern that global expansion may slow, dragging down shares of exporters such as Honda Motor Co., LG Electronics Inc. and Sony Corp., and boosted oil producers' stocks including Woodside Petroleum Ltd.
``Certainly there is concern about the oil price movement,'' Bank of Japan Governor Toshihiko Fukui told reporters in Bali on June 18. ``It could have an effect on the global economy and indirectly on the Japanese economy.''
Japan's machinery orders fell in April for the first month in three as higher global oil prices slowed sales at the nation's exporters, prompting them to rein in investments, official figures showed on June 16.
``The only thing that will stop prices going up is for them to rise to the point where they start hurting the economy,'' the Institute for the Analysis of Global Security's Luft said. ``The question is: How high should oil prices rise be before they slow down China and India?''
JPMorgan
JPMorgan raised its forecast for China's economic growth this year to 9.4 percent from 9.3 percent after the report on factory output, suggesting economic activity is picking up, Hong Kong-based economist Ben Simpfendorfer said in an interview today.
China's economy expanded a revised 9.4 percent in the first quarter from a year earlier. Last year, the economy expanded 9.5 percent, the fastest pace in eight years.
Factory output in China, the world's fastest-growing major economy, jumped 16.6 percent in May, the fastest pace in three months, exceeding economists' estimates.
Oil also rose after Royal Dutch/Shell Group shut a catalytic cracking unit at its Deer Park, Texas, refinery, the sixth- largest in the U.S., for 10 to 14 days for repairs, heightening concern over gasoline and winter fuel supplies.
The company said on June 17 it shut the unit following the rupture of a heater steam coil on June 15. The 67,000 barrels-a- day unit manufactures gasoline and diesel fuel blending components.
Crude oil prices may rise this week as producers including the Organization of Petroleum Exporting Countries struggle to meet surging demand from refiners, a Bloomberg survey showed.
Analysts
Thirty-five of 68 analysts and strategists surveyed by Bloomberg last week, or 51 percent, said oil prices will rise. Eighteen, or 26 percent, said they will fall, and 15 forecast little change.
Prices rose 9.2 percent last week even as OPEC agreed June 15 to raise its production quota by 500,000 barrels a day to 28 million a day effective July 1. That's a record for the 10 members restrained by self-imposed limits, all except Iraq.
``We're running at full capacity or very close to it. Any interruptions to supply or in refining'' will cause problems, said Tobin Gorey, a commodity economist with Commonwealth Bank of Australia in Sydney. ``We're going to get to $60.''
World oil production averaged 83.8 million barrels a day in the first quarter. U.S. crude-oil inventories fell 4.9 million barrels in the last two reports by the nation's Energy Department as refiners boosted production of diesel and gasoline.
Crude oil futures gained 9.2 percent last week on concern refiners would strain to make enough gasoline for the U.S. summer driving season and store distillates for the northern hemisphere winter.
Diesel, Jet Fuel
Demand for distillates, which include diesel and jet fuel, was 6.5 percent higher in the four weeks ended June 10 than a year earlier, the Energy Department said last week.
U.S. distillate production rose for a seventh week on June 10, reaching a record 4.4 million barrels a day. Refiners used 96.7 percent of their plant capacity, the highest since July, and gasoline production fell.
``The ability of the industry to refine enough product is going to have to be proven'' every week, Commonwealth's Gorey said. ``The run of luck we've had coming into the summer driving season can't last.''
Concerns about fourth-quarter demand means the price of oil for delivery later in the year is higher than the contract nearest expiry. Contracts for delivery in October, November and December all rose above $60 a barrel last week.
``I don't think $60 is going to be the psychological barrier that $50 was,'' Gorey said.
The July oil contract expires at the end of trade tomorrow. Crude oil for August rose as much as 72 cents, or 1.2 percent, to $59.90 a barrel in after-hours trading. |
