Crude Oil Falls as U.S. Gasoline Output Gains, Boosting Supply
April 15 (Bloomberg) -- Crude oil fell, heading for its biggest two-week drop this year, as the U.S. produced more gasoline before demand peaks this summer.
U.S. refiners made 8.7 million barrels of gasoline a day last week, the most this year, the Energy Department reported, helping to lower retail gas prices from records as inventories climbed. Next week, oil prices may keep dropping as crude and motor-fuel supplies continue rising, a Bloomberg survey showed.
``The fear that production wouldn't keep up with demand for gasoline has somewhat eased,'' said Anette Einarsen, an oil analyst in Oslo for Nordea Bank AB. ``Stockpile levels are starting to increase, which is normal for this time of year.''
Crude oil for May delivery fell as much 93 cents, or 1.8 percent, to $50.20 a barrel and was down 62 cents at $50.51 at 1:20 p.m. London time on the New York Mercantile Exchange. That's down 13 percent from a record of $58.28 last week. Prices fell as low as $49.75 yesterday. Brent crude for June declined 64 cents to $51.65 on London's International Petroleum Exchange.
Thirty-three of 61 oil analysts and strategists surveyed by Bloomberg, or 54 percent, predicted oil prices will decline next week. Fourteen, or 23 percent, said they will rise, and 14 forecast little change.
The U.S. is the world's biggest gasoline consumer, using about 10 percent of the world's oil to meet its gas needs. Last week's increase in gasoline production, the second in a row, halted a monthlong decline in stockpiles.
`Believe in the Numbers'
U.S. gasoline production in the week ended April 1 rose 5.2 percent to 8.62 million barrels a day, the Energy Department said. That was the biggest gain since October, when some refineries resumed operations after Hurricane Ivan shut them in September. In the week ended April 8, output rose a further 0.9 percent.
``People were still betting on problems in U.S. gasoline in the transition from winter to summer,'' said Deborah White, a commodities economist at Societe Generale in Paris. ``Having a second week of gasoline production above 8.6 million barrels a day forced us to believe in the numbers.''
Consumption of gasoline peaks in the U.S. from Memorial Day in late May through Labor Day in early September. The government predicts average retail gasoline prices will peak at $2.35 a gallon in May. Yesterday, they fell to $2.251 a gallon from a record $2.276 on April 11, according to the AAA, formerly the American Automobile Association.
OPEC Pumping More
The Organization of Petroleum Exporting Countries, source of about 40 percent of the world's oil, is pumping more oil so supplies can grow before demand increases in the fourth quarter.
Production from OPEC's 11 members rose to 29.76 million barrels a day in March, the group said in a monthly report today, up 300,000 a day from February, based on the average of estimates by secondary sources that include analysts and news agencies. Output in the first quarter averaged 29.52 million barrels a day, 1.3 million a day more than a year earlier.
``The report is mildly bearish for prices because it should help alleviate supply concerns,'' said Peter Luxton, an analyst with Informa Global Markets in London. ``The line of OPEC is that crude supplies are adequate and that they are turning the taps to allow stockpiles to build up in the second quarter.''
Saudi Arabia, OPEC's largest producer and dominant member, offered to supply more crude to Asian customers next month. The kingdom pumped 9.35 million barrels of crude a day in March, according to OPEC's report today.
``The market is waiting to see if the Saudis are successful in putting another 500,000 barrels a day in the market,'' White of Societe Generale said. ``It all depends on how customers respond, if they have space to put that crude somewhere.''
`Adequate' Inventories
U.S. crude oil inventories climbed to their highest in almost three years last week after rising for nine consecutive weeks, the Energy Department said. On a global basis, stockpiles in February rose to cover 52 days of demand from 51 days in January, according to the International Energy Agency.
``U.S. inventories levels are more than adequate,'' White said. ``We know the Midwest is extremely long on crude. Stocks are high and they seem to have very high quality crude.''
Rising supplies of West Texas Intermediate crude, or WTI, the benchmark for futures trading on Nymex, have caused prices of the closest-to-delivery contract, or prompt oil for May, to be about $1.70 a barrel lower than crude for June delivery.
This pricing structure, known as contango, is an incentive for refiners to accumulate oil in storage because they can buy it cheaper now than in the future.
New York oil for delivery in October is trading at about $53.70 a barrel, more than $3 higher than for May delivery.
``In the longer term, markets still have some concerns about the demand-and-supply balance,'' Luxton said, because consumption is expected to increase in the second half of 2005.
Spare Capacity
OPEC's spare capacity for the average of 2005 will be about 3 million barrels a day, and overall production capacity will rise by 1.6 million barrels a day to 32.7 million barrels a day, OPEC's Vienna-based secretariat said in today's report.
In Asia, oil demand may suffer ``a depressing effect'' from higher retail prices for oil-derived products such as gasoline, according to the International Energy Agency. Governments of Southeast Asian countries including Indonesia, Malaysia, Vietnam and Thailand have reduced fuel subsidies to end-users, the Paris- based IEA said in a monthly report this week.
``Consumers in these countries will react to higher prices'' by cutting use, Nordea's Einarsen said. ``Americans are also buying more gasoline-efficient cars from Asia, so even if they are driving more, demand for gasoline isn't increasing at the same speed.''
Shares fell in Europe and Asia and U.S. stock-index futures declined today on concern economic and profit growth is faltering. Slowing economies mean demand for oil may decline.
``There is quite a bit of nervousness in the equity markets, amid growing concern about a slowing economy and a lackluster start to the earnings season,'' Edward Meir, a commodities analyst at Man Financial Ltd. in Darien, Connecticut, said in an e-mailed note. |
