8/9 17:32 Crude Oil Rises to 21-Month High in New York as OPEC Lowers Production
By Mark Pittman
Crude Oil Rises to 21-Month High as OPEC Drains Glut (Update1)
(Adds background and quotes from 8th paragraph to
conclusion.)
New York, Aug. 9 (Bloomberg) -- Crude oil rose to a 21-month
high, its fourth straight increase, on expectations that vacation
demand for gasoline and output cuts by producers will end a glut.
Americans are consuming more fuel than normal as they take
to the highway for summer vacations, and U.S. inventories of oil
and gasoline fell in four of the past five weeks. The drain in
supplies was spurred by a 7.1 percent cut in global output by the
world's top exporters, which could help boost prices further,
traders said.
''First, the crude gets cut, then refineries cut back and
pretty soon there's less gasoline and heating oil,'' said John
Kilduff, senior vice president of energy risk management at Fimat
USA Inc. in New York.
Crude oil for September delivery rose 39 cents, or 1.9
percent, to $21.27 a barrel on the New York Mercantile Exchange.
It was the highest price since October 1997. In London, September
Brent crude oil rose 45 cents, or 2.2 percent, to $20.51 a
barrel on the International Petroleum Exchange, the highest
closing price since Oct. 10, 1997.
Members of the Organization of Petroleum Exporting Countries
agreed in March to output cuts equivalent to almost 6 percent of
world supply, or 4.3 million barrels a day. The producers made
95 percent their pledged reductions in July, according to
Bloomberg estimates.
Supplies of petroleum products, particularly in Europe, were
also crimped as Russia reduced fuel exports to make sure domestic
supplies are sufficient.
Gasoline for September delivery on the Nymex rose 0.21 cent
to 66.04 a gallon, while heating oil for September delivery rose
0.68 cent to 55.21 cents a gallon.
Price increases accelerated when pre-arranged buy orders
were triggered at $21.12 a barrel, the previous inter-day high,
Kilduff said.
Some of the buy orders came from speculative commodity
funds, which have been fueling the rally since its inception in
February, Kilduff said.
Crude oil inventories dropped only once in the past seven
weeks while gasoline supplies fell once in the past eight weeks,
the American Petroleum Institute reported last Tuesday.
Supplies of petroleum products, in Europe were crimped by
Russia, which is cutting exports to make sure domestic supplies
are sufficient.
Tighter supplies and higher profits from selling gasoline
prompted the Royal Dutch/Shell Group, Europe's second-biggest
refiner after Exxon Corp., to increase production.
Gasoline prices are up 25 percent since April 25, when Shell
first reduced the amount of oil it processed in Europe by 10
percent. The company followed that with another 10 percent cut on
May 11. Shell has 16 refineries in Europe with a capacity of
1.4 million barrels a day. Since Shell first cut output, refiner
profitability on gasoline sales has increased 51 percent, based
on New York futures.
''You should see all the refiners crank up production,''
said Victor Yu, an analyst at Refco Inc. in New York. Profit
margins have been so good recently, ''you'd think they'd make a
ton of gasoline.''
On April 26, the profit for selling gasoline compared with
the cost of crude oil was $4.45 per barrel on the Nymex. It was
$6.52 a barrel today.
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