Oil Is Steady Near $144 After Reaching Record on U.S. Supplies
By Robert Tuttle
July 3 (Bloomberg) -- Crude oil futures were steady after rising to a record above $144 a barrel in New York as a U.S. government report showed an unexpected decline in inventories.
Supplies dropped 1.98 million barrels to 299.8 million last week, the lowest since January, the Energy Department said yesterday. Analysts in a Bloomberg News survey had predicted the report would show a 500,000 barrel rise in inventories. Prices also climbed as the dollar weakened.
``We dropped about 2 million barrels on crude and most everyone was looking for a slight build,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. ``That leaves us somewhere around 7 to 8 percent below normal on crude stocks.''
Crude oil for August delivery rose as much as 62 cents, or 0.4 percent, to $144.19 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was trading at $143.98 at 8:22 a.m. in Sydney. Futures touched a record $144.32 after the close of floor trading yesterday and have doubled in the past year.
Brent crude for August delivery rose $3.59, or 2.6 percent, to $144.26 a barrel on London's ICE Futures Europe exchange yesterday. Futures earlier touched a record $144.90 a barrel.
Oil's appeal as a hedge against inflation may rise if the European Central Bank increases interest rates today, causing the dollar to fall. The European Central Bank will lift its 4 percent benchmark main refinancing rate by a quarter-percentage point, according to 57 of 58 economists surveyed by Bloomberg News.
``People are bracing themselves for an ECB rate hike, which should further weaken the U.S. dollar,'' said James Cordier, president of Liberty Trading Group in Tampa. ``As the dollar falls, oil becomes cheaper to foreign countries.''
Falling Dollar
The dollar dropped 0.6 percent to $1.5880 per euro at 3:03 p.m. in New York, from $1.5793 yesterday. It touched $1.5888, the weakest level since April 24.
Russian President Dmitry Medvedev said oil will reach $150 a barrel, and suggested the high price will slow global economic growth.
``I have said that oil prices will reach $150 a barrel,'' Medvedev said yesterday in a meeting with reporters in Moscow ahead of his participation in a summit of the Group of Eight industrial countries in Japan next week. ``Unfortunately, rising oil prices create problems for the world's economy.''
Oil has risen this year partly on concern that Israel may attack Iran to halt the country's nuclear program, an event the U.S. State Department has said is unlikely. Iran is the second- biggest producer in the Organization of Petroleum Exporting Countries.
Iran Talks
Iran's Foreign Minister Manouchehr Mottaki said a ``new trend'' has started in negotiations as his country considers an incentives offer by world powers to halt uranium enrichment, the official Islamic Republic News Agency reported.
The International Energy Agency said July 1 that spare OPEC capacity will shrink by 2013, keeping the market ``tight.'' OPEC excess capacity will decline to a ``negligible'' 1 million barrels a day within five years, the agency said in a report.
``It's a clear indication that prices above $130 are justified in the long term,'' said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. ``There's only low spare capacity to compensate for events, for geopolitical insecurity.''
Bank of Italy Governor Mario Draghi, a member of the European Central Bank, said today that oil prices reflect ``real'' market tensions and aren't the result of ``irrationality.''
Gasoline Inventories
U.S. gasoline inventories rose 2.1 million barrels to 210.9 million and supplies of distillate fuel, including heating oil and diesel, increased 1.3 million barrels to 120.7 million barrels, the Energy Department said in its report today.
The report is ``somewhat bullish for crude and bearish for refined products and we needed the opposite,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``That would have helped margins and encouraged independent refiners'' to increase processing rates.
The margin for turning three barrels of crude into two of gasoline and one of heating oil rose 6.4 cents to $12.678 a barrel, based on futures prices. That's 38 percent lower than $20.5140 reached on June 3.
Refineries operated at 89.2 percent of their capacity, the department reported, 0.6 percentage point higher than the week before. Refiners operated at 90 percent of capacity a year earlier.
To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net
Last Updated: July 2, 2008 18:36 EDT
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