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Oil prices slip but stay above $54 per barrel Despite OPEC pledge to maintain output, crude futures ease slightly as strong demand for diesel rekindles worries of distillate shortfall The Associated Press
Crude futures eased but remained above $54 per barrel June 2 despite a new pledge from OPEC to maintain current production levels, as strong demand for diesel rekindled worries of a distillate shortfall in the second half of the year.
Analysts said the focus on heating oil and diesel was unusually early. Still, some suggested that with gasoline plentiful as refineries concentrate on churning out that product, the market had nowhere else to go but focus on diesel tightness in Europe, the United States and Asia.
Some concern that increased OPEC production had failed to put a lasting dent in prices and forecasts of an active hurricane season in the United States with the potential for disruptions in refining and downloading crude added to sentiment that has prompted prices to surge from the $47 level in two weeks.
Light sweet crude for July was down 33 cents by afternoon in Europe at $54.27 a barrel on the New York Mercantile Exchange. Crude prices had jumped $2.63 on June 1 to close at $54.60 per barrel.
Unleaded gas fell by nearly a cent to $1.5350 a gallon (3.8 liters), while heating oil edged down to $1.5398 a gallon.
In London, Brent crude was down 27 cents at $53.00 on the International Petroleum Exchange. Prices 25% higher than a year ago Oil prices are now around 25 percent higher than a year ago but would still need to surpass $90 a barrel to match the inflation-adjusted high set in 1980. Still, the 5 percent gain in crude on June 1 was the seventh increase in a row.
Analysts attributed the start of Wednesday’s rally to robust heating oil prices, which shot up by 9.05 cents to $1.54 a gallon. Gains then spread to other commodities, they said.
“With the U.S. driving season officially under way, gasoline was supposed to spark, but the fireworks are in heating oil instead,” said Energyintel analyst Matt Piotrowski.
This, he said reflected a “tight global market for road diesel and other middle distillates, such as jet fuel, kerosene and heating oil.”
Demand traditionally peaks in the second half of year, when heating oil and jet fuel usage rises during the Northern Hemisphere winter. Analysts say too much emphasis has been placed on refineries to produce more petrol in the summer driving season neglecting other fuels such as diesel and other distillates.
“Distillates are stealing the show from gasoline at the start of the U.S. driving season,” PVM Oil Associates in Vienna said in its daily energy market report. “In the U.S., the concern is that refiners’ prime target to churn out as much gasoline as possible will leave distillates supplies inadequate throughout the rest of the year.
“In particular, diesel demand from the trucking sector is continuously running strongly ahead of year-ago figures,” PVM said, adding estimated year-on diesel demand is up about 6 percent. Close to max in refining capabilities Frederic Lasserre, head of commodities research at SG Securities in Paris, said that “in terms of refining capacities … we are close to the max,” as far as diesel and heating oil is concerned, adding: “The market is now fearing that we will see a global shortage … for next winter.”
“It’s crazy,” he said of the timing of the focus on heating oil and diesel which essentially undergo the same distilling procedures. “It’s the kind of development you should have in the heart of winter.”
The U.S. Energy Department releases its next petroleum supply snapshot later June 2 (after Petroleum News goes to press), a day after the usual weekly announcement because of the Memorial Day holiday.
The report would have to show substantial across-the-board growth in petroleum stocks to bring prices down but Lasserre said “the market was now convinced that the stock build is almost over,” suggesting that was another trend driving up prices.
On June 1 the president of the Organization of Petroleum Exporting Countries, Sheik Ahmed Fahd Al Ahmed Al Sabah, said the cartel, which produces 40 percent of global crude, would maintain its current production ceiling until the third quarter of 2005.
OPEC is to meet June 15 in Vienna to discuss production levels. Al Sabah’s comments are likely to rile price hawks like Venezuela who have indicated a preference for an output cut to keep prices high.
The 11-member group is pumping out around 30 million barrels daily in its attempt to keep prices in check and calm markets.
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