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Oil demand outpacing supply concerns Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=apIxeEk59Zck&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=apIxeEk59Zck&refer=home
Oil Surges to a Record on Concern Demand Is Outpacing Supply
March 16 (Bloomberg) -- Crude oil surged to an all-time high as a promise of higher output from OPEC failed to ease concern that demand is rising faster than supply.
A report that U.S. gasoline inventories fell more than expected last week pushed prices past the previous record of $55.67 a barrel, set Oct. 25. The Organization of Petroleum Exporting Countries, meeting in Isfahan, Iran, agreed to boost their quotas by 500,000 barrels a day, or 1.9 percent. Saudi Oil Minister Ali al-Naimi warned of higher demand later this year.
``We're worried about the high-demand period this summer and our ability to keep up with gasoline consumption,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``U.S. crude supplies rose last week but with the growth of China there's going to be more competition for barrels in the months ahead.''
Crude oil for April delivery rose 80 cents, or 1.5 percent, to $55.85 a barrel at 12:59 p.m. on the New York Mercantile Exchange. Futures touched $56.35, the highest since the contract was introduced in 1983. Prices are 49 percent higher than a year ago.
In London, the April Brent crude-oil futures contract rose 80 cents, or 1.5 percent, to $54.65 a barrel on the International Petroleum Exchange. Brent futures touched $54.95 a barrel, the highest since the contract was introduced in 1988.
`Supplies Are Getting Tight'
``In terms of world supply, I think if you look at all the statistics, demand is outracing supply and supplies are getting tight,'' said President George W. Bush, speaking at a press conference in Washington.
U.S. crude-oil supplies gained 2.6 million barrels to 305.2 million last week, the highest since June, according to the department. Analysts surveyed by Bloomberg forecast a 2 million barrel increase.
Gasoline supplies dropped 2.9 million barrels to 221.4 million, the report showed. Stockpiles were forecast to fall by 1 million barrels, according to the median of results from 15 analysts surveyed by Bloomberg. It was the biggest one-week decline in supplies since September.
``I am concerned about the price of energy and what it means to the average American family when they see the price of gasoline going up,'' Bush said.
Bush urged Congress to respond to rising prices by passing energy legislation and allowing oil drilling in the Arctic National Wildlife Refuge in Alaska.
Gasoline for April delivery rose 2.27 cents, or 1.5 percent, to $1.53 a gallon in New York. Futures touched a $1.548 a gallon, 1.2 cents short of the record reached on March 9. Prices are 36 percent higher than a year ago.
Retail Prices
Retail gasoline prices are approaching records as wholesalers and station owners pass on their higher costs. Pump prices for regular grade gasoline, averaged nationwide, rose 0.5 cent to $2.053 a gallon yesterday, 1 cent short of the record reached on May 26, according to the AAA, formerly the American Automobile Association.
Consumers this year are feeling the effect of higher oil prices faster than they ever have before, said Gary Heminger, president of Marathon Ashland Petroleum LLC, the largest refiner in the U.S. Midwest.
Oil-price increases that formerly took two weeks to a month to translate into higher retail gasoline prices are now rippling through fuel markets ``within the week,'' Heminger said yesterday in a presentation to investors and analysts in Boston.
OPEC Agreement
The Organization of Petroleum Exporting Countries will raise quotas by 500,000 barrels a day, or 1.9 percent, and hold talks on a similar increase to start May 1, OPEC President Sheikh Ahmad Fahd al-Sabah told reporters in Isfahan, Iran, where the group met today. Because members are already supplying more than planned, additional barrels may not come until May, he said.
Global supply is sufficient to boost inventories today, al- Naimi said yesterday in Isfahan. ``However, when we project into the fourth quarter, we see a substantial rise between the third quarter and the fourth,'' he said. ``We believe additional crude is needed. How much, we don't know.''
OPEC pumped 29.85 million barrels of oil a day in February, according to a Bloomberg survey of oil companies, producers and analysts. The ten members with quotas, all except Iraq, have a production target of 27 million barrels a day. Members pumped 30.54 million barrels a day in October, the most since December 1979, based on U.S. Energy Department records.
The International Energy Agency, an adviser on energy policy to 26 industrialized nations, forecast in a report last week that oil consumption will climb by 1.81 million barrels, or 2.2 percent, to 84.3 million barrels a day this year. It was 330,000 barrels more than the agency forecast last month.
Chinese Demand
Chinese fuel use will rise 7.9 percent this year, or 500,000 barrels a day, to 6.88 million barrels a day, according to the Paris-based agency. China is the second biggest oil consumer after the U.S.
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.
``The OPEC agreement has clearly been discounted by the market,'' said Michael Fitzpatrick, vice president of energy risk management at Fimat USA in New York. ``Rampant speculation has driven this rally. They are looking past the near term and at the fourth quarter when huge demand may outstrip supply.''
Last week, large speculators had their biggest bet on higher oil prices since May, according to Commodity Futures Trading Commission data. Speculative long positions, or bets on rising prices, outnumbered short positions by 76,663 contracts in the week ended March 8, the commission reported on March 11. Net longs peaked at 82,451 in March 2004.
Last Updated: March 16, 2005 13:16 EST
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