Oil Breaks Sliding Trend

Tue April 29, 2003 11:26 PM ET

SINGAPORE (<a href=reuters.com>Reuters) - Oil prices traded marginally higher on Wednesday, breaking six straight days of falls that wiped more than $3 off a barrel of crude as traders awaited fresh data from the United States on the health of U.S. fuel supplies.

U.S. light crude CLc1 climbed 18 cents to $25.42 a barrel, recovering from a five-month low of $25.18 struck on Tuesday on expectations of rising supply in a weak global economy and with the deadly SARS epidemic biting into oil demand.

London's Brent crude LCOc1 rose nine cents to $23.35 a barrel.

"I think at these levels, oil is becoming a good short-term buy on a risk-reward consideration. Stocks are still very low and any potential supply disruption could flick U.S. crude back up to $26 or $27," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.

With little by way of headlines to move prices, traders will focus attention on U.S. oil stocks data to be released by the government's Energy Information Administration (EIA) later on Wednesday.

The weekly report on inventory levels across the barrel is closely monitored by oil dealers for signs of market imbalances in the world's biggest oil consumer and for a snapshot of demand.

U.S. fuel stocks have been running at steep deficits to year-ago levels, raising fears of a potential shortfall following disruptions to supplies from Venezuela, Nigeria and Iraq in the last six months.

Analysts polled by Reuters on Monday forecast the EIA to report a 2.85 million barrel increase in crude levels in the week to April 25 as refiners rachet up processing rates in preparation for the summer run on gasoline during the holiday season.

Analysts pegged gasoline inventories rising by 1.6 million barrels, while distillate stocks were seen up by 1.3 million barrels as demand tails off with the end of winter.

Oil prices tumbled more than $1 last Wednesday after the EIA reported an unexpectedly large nine-million-barrel jump in crude stocks on record imports, with much of the extra supply coming from OPEC producers.

SARS THREATENS OIL DEMAND GROWTH

The Organization of the Petroleum Exporting Countries last week agreed to cut back less than expected of the surplus crude it pumped to cover supply during the U.S.-led war on Iraq.

OPEC raised production well beyond formal quota limits in March to keep oil prices under control ahead of war in Iraq and make up for supply disruptions from a strike in Venezuela and ethnic strife in Nigeria.

While OPEC presented its deal as a cut of two million barrels per day (bpd), analysts said its threshold for the reduction was inflated, reducing the actual impact of the move.

The increased OPEC supply, particularly from Saudi Arabia, has helped bring oil prices below the $30 a barrel level that analysts warn can hurt global economic growth.

Also weighing on prices, the International Energy Agency has said it may have to cut its world oil demand forecast for this year as the deadly SARS virus slashes air travel.

OPEC has said it expected Severe Acute Respiratory Syndrome to hit Asian demand alone by some 300,000 bpd mainly due to declining travel. The epidemic coincides with the second quarter, when oil demand falls about two million bpd from its winter peaks.