Crude Oil Falls as U.S. Supplies Rise
March 10 (Bloomberg) -- Crude oil in New York fell for the first time in seven sessions amid strengthening U.S. inventories and lower shipments to China, the second-biggest fuel consumer.
Higher supplies depressed prices after futures rose within 2 cents of the record of $55.67 a barrel yesterday. U.S. stockpiles last week were 9.7 percent higher than a year ago, the Energy Department reported yesterday. China's oil imports fell 13 percent in the January-February period to 18.2 million metric tons, the Customs General Administration said today.
``We tried and failed to hit the record yesterday and are still down today, which is a bearish signal,'' said Bill O'Grady, director of fundamental futures research with A.G. Edwards & Sons Inc. in St. Louis. ``It's scary to say this but this may be the beginning of a correction. We've risen awfully high in the face of rising inventories.''
Crude oil for April delivery fell $1.57 cents, or 2.9 percent, to $53.20 a barrel at 2:09 p.m. on the New York Mercantile Exchange. Futures touched $55.65 a barrel yesterday, matching the intraday high reached on Oct. 27. Prices are up 47 percent from a year ago.
``The Chinese imported too much oil in the fourth quarter and are working their way through their stockpiles,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. ``China's refinery runs are still very high so demand isn't being hit.''
Oil surged 34 percent in New York last year because production wasn't keeping up with global demand, particularly from China. Global use will rise an estimated 2.5 percent to an average 84.7 million barrels a day this year, an Energy Department report on March 8 showed. World oil production will average 84.6 million barrels a day, the report said.
`Prices Are Too High'
``Oil prices are too high,'' U.S. Treasury Secretary John Snow said in an interview from Albuquerque, New Mexico. ``They act like a tax, they reduce disposable income and create headwinds. Fortunately our economy is so strong and so resilient we've been able to press through those headwinds all against the backdrop of moderate inflation.''
Prices rose in 1974 after an oil embargo that followed the Arab-Israeli war and from 1979 through 1981 after Iran cut oil exports. The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department, or $75.71 in today's dollars.
Market's Resilience
``The market has shown its resilience and after today should resume its move higher,'' said Justin Fohsz, a broker with Starsupply Petroleum Inc. in Englewood, New Jersey. ``Prices are about where they should be when you take inflation into account, which is why they have been accepted pretty well. I think we will see $60 oil before we see $40 oil again.''
In London, the April Brent crude-oil futures contract declined $1.13, or 2.1 percent, to $52.25 a barrel on the International Petroleum Exchange. Brent futures touched $54.30 a barrel yesterday, the highest since the contract was introduced in 1988.
The International Energy Agency, adviser to industrialized nations on energy policy, tomorrow publishes its monthly outlook for supply and demand. The Paris-based IEA has raised its oil demand forecasts in all but three months since November 2003, citing unexpectedly fast growth in Chinese consumption.
The Organization of Petroleum Exporting Countries, producer of about 40 percent of the world's oil, meets in Isfahan, Iran, on March 16 to discuss production and prices. Ten OPEC members, excluding Iraq, have production quotas set by the group. Members that could pump more ignored those limits in the latter half of 2004, as prices rose to records.
OPEC Cut
OPEC agreed in December to cut production by 1 million barrels a day beginning on Jan. 1 to meet its quota of 27 million barrels a day to stop inventories from rising.
Gasoline for April delivery fell 5.59 cents, or 3.7 percent, to $1.477 a gallon in New York. Futures touched $1.56 a gallon yesterday, the highest since the contract began trading in 1984. Gasoline is 38 percent higher than a year ago.
``Last week gasoline led the rally but that prop is giving way,'' said James Ritterbusch, president of Ritterbusch and Associates, a Galena, Illinois-based oil researcher. ``The underlying items that have driven hedge-fund interest remain. OPEC's limiting of supply and a weak dollar make it likely that there will be another run at the record.''
Hedge-fund managers and other large speculators last week had their biggest bet on higher oil prices since June, according to a report by the Commodity Futures Trading Commission on March 4. Speculative long positions, or bets prices will rise, outnumbered short positions by 60,173 contracts on March 1 on the New York Mercantile Exchange, the commission reported.
To contact the reporter on this story:
Mark Shenk in New York at mshenk1@bloomberg.net.
To contact the editor responsible for this story:
Robert Dieterich at rdieterich@bloomberg.net.
Last Updated: March 10, 2005 14:23 EST
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