Crude prices down on mixed oil report

OPEC says it will add 600,000 bpd in June; IEA sees thin spare capacity; Chinese demand growth only 4.5% in first quarter

George Jahn

Associated Press Writer

Crude futures sagged May 11 as traders digested a mixed oil report from the international energy watchdog organization and bet that U.S. figures later in the day would show another increase in inventories.

OPEC’s pledge to increase daily production by 600,000 barrels from June to meet increasing demand also appeared to drag down prices.

Light, sweet crude for June delivery on the New York Mercantile Exchange fell 58 cents to $51.49 a barrel by afternoon in Europe.

Unleaded gas fell more than a cent to $1.4990 a gallon. Heating oil was down nearly a cent at $1.44405 a gallon.

On London’s International Petroleum Exchange, June Brent futures eased 58 cents to $50.85 a barrel.

The decline May 11 came after increases on the New York Mercantile Exchange on speculation that rising gasoline use during the Northern Hemisphere summer and anticipated surges in demands for heating oil the following winter would leave supplies tight.

Mixed news May 11 from the Paris-based International Energy Agency appeared to provide little market guidance.

The energy monitoring organization forecast that production would meet peak winter demand but forecast thin spare capacity and a possible tightening of stocks in the United States as oil supplies diminish.

The report also said Chinese oil demand — which helped pressure the market last year — grew only 4.5 percent in the first quarter of this year. That’s less than a third of the 19.3 percent spike over the same period last year.

“The numbers in the report still point to an easier market ahead ... but in the text they’re talking about spare capacity not entering the comfort zone any time in the future,” said Kevin Norrish, head of commodities research at Barclays Capital in London.

OPEC to raise production in June

The hike would last until the third quarter of the year to stabilize prices, the official Kuwait News Agency said.

The U.S. Energy Department report released every Wednesday has shown consistent builds in oil and gasoline stockpiles for the past three months and has been crucial in lowering Nymex prices since their all-time high of $58.28 early April.

But traders brushed aside the report the first week in May, instead focusing on possible refinery outages, supply disruptions and fears that OPEC may not be able to keep up with an anticipated surge in demand later this year.

PVM Oil Associates in Vienna suggested that — if interpreted as bearish by traders — the IEA and U.S. data could cause prices “to dive below the $50-per-barrel threshold.”

But analysts suggested that despite anticipated new stock builds, supply increases were close to peaking, meaning that — over the longer term — prices would reverse and head upward again.

“The trend in U.S. statistics over the last couple of weeks has been one where the steady upward trend in import and crude and inventories appears to be leveling out,” said Norrish, of Barclays Capital.

Daniel Hynes, an energy analyst from ANZ Bank in Melbourne, Australia, also predicted a bullish trend in the future.

“While the increase in stocks may put some downward pressure on prices, the market tends to focus on the demand side of the equation,” he said. “This strong demand will wipe out any of the strong stockpiles we’ve had.”