Oil Falls but Supply Worries Persist
Tue May 27, 2003 12:50 PM ET By Sujata Rao
LONDON (<a href=reuters.com>Reuters) - World oil prices fell back on Tuesday as traders took profits from recent gains but players said underlying sentiment remained bullish in an environment of low global energy stocks.
London benchmark Brent fell 44 cents to $25.80 a barrel, retreating from highs of $26.71 a barrel hit earlier in the day, when prices reacted to reports that Saudi Arabia was preparing to trim June supplies.
U.S. light crude fell 54 cents to $28.62 a barrel after a strong start and traders said more fresh news would be needed to propel the price any higher. Some of the weakness was due to profit-taking on gasoline.
But analysts said the market remained worried about lower OPEC supply at a time oil stocks in the U.S., the world's biggest oil consumer, are far below average for this time of the year.
"Markets will be wary of moving much lower seeing that stocks are so low," Middleton said.
The inventories have come into sharp focus as the Memorial day holiday last weekend marks the start of the U.S. driving season when Americans take to the roads on vacation.
U.S. gasoline consumption in the summer accounts for 12 percent of global energy demand during the period and gasoline inventories are some four percent under year-ago levels.
Analysts said expectations had not materialized of large crude shipments to the United States after the OPEC cartel hiked output in March to compensate for the loss of Iraqi barrels as well as some Nigerian outages.
"There were all these expectations of a wall of crude which was supposed to arrive and resolve all the stock problems but that didn't seem to happen," said John Waterlow, analyst with Wood Mackenzie in Edinburgh.
OPEC
Crude prices have rebounded by more than 10 percent since the start of May, as U.S. energy stocks have failed to return to normal after a harsh winter.
Now concern is mounting that OPEC is preparing to trim supplies. A Gulf source told Reuters on Monday that Saudi Arabia was preparing to cut June supplies to match the output quotas agreed on last month. It is expected to cut output to 8.25 million barrels per day (bpd) in June.
Consultancy Petrologistics said Saudi Arabia pumped 9.1 million bpd in May with overall OPEC output at 26.7 million bpd.
Adding to the worry is that Venezuela, a key gasoline source for the U.S., says it will further delay exports of reformulated clean burning gasoline that is mandatory in many U.S. states.
One bearish factor however is that Iraq is gearing up for its first oil exports since the war, aiming to first sell some eight million barrels lying in storage at Turkey's Ceyhan port.
The head of Iraq's state oil marketer SOMO, Mohammed al-Jibouri, told Reuters on Tuesday Baghdad aims to export the first post-war barrels of crude by mid-June. He said steady exports should follow as output from oilfields is rising fast.
Before the war, Iraq supplied four percent of globally traded oil and analysts say a resumption of Iraqi exports is likely to trigger a price slide in the third quarter of 2003.