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Crude Oil Rises as China Fuel Sales Jump; U.S. Supply May Drop

Crude Oil Rises as China Fuel Sales Jump; U.S. Supply May Drop

July 20 (Bloomberg) -- Crude oil rose for a third day in four after a government report showed China's fuel sales at home surged and economic growth unexpectedly picked up, signs that high prices have failed to curb demand from the world's second-biggest user.

China's domestic retail sales of petroleum and related products jumped 37 percent in the first half and second-quarter gross domestic product climbed 9.5 percent, more than expected, the National Bureau of Statistics said. A U.S. government report later today may show U.S. crude supplies fell for a third straight week last week, according to a Bloomberg survey.

``When we look at Chinese sales, we still see a strong and robust trend in consumption,'' said Frederic Lasserre, head of commodities research at Societe Generale SA in Paris. ``We might see a huge rebound in Chinese oil imports in the second half of this year.''

Crude oil for August delivery rose 45 cents, or 0.8 percent, to $57.91 a barrel on the New York Mercantile Exchange at 1:05 p.m. London time, up 43 percent from a year ago. Prices reached a record $62.10 on July 7, partly on concern that hurricane-related disruptions would curb U.S. supplies.

China's growth accelerated as exports surged and investment in power plants, mines and factories gathered pace. The increase beat the median 9.2 percent gain forecast in a Bloomberg survey of 13 economists. First-quarter expansion was 9.4 percent.

``China has confounded expectations of a slowdown,'' said Dariusz Kowalczyk, a senior investment strategist in Hong Kong at CFC Securities Ltd. ``Commodity prices should increase for the very simple reason that the recent declines have been caused by fears of a Chinese slowdown. This data disproves such fears.''

Stockpiles Report

Brent crude for September settlement rose 36 cents, or 0.6 percent, to $57.72 on London's International Petroleum Exchange.

The U.S. Energy Department will release its weekly report on petroleum inventories at 10:30 a.m. Washington time.

The median forecast of 10 analysts surveyed by Bloomberg shows crude inventories probably dropped by 3.45 million barrels in the week ended July 15. Supplies a week earlier were 7 percent higher than their five-year seasonal average.

The drop probably was the result of reduced output and imports after Hurricane Dennis swept through the Gulf of Mexico, near to oil-producing areas of the U.S.

``It seems that there is a consensus that we will see the bulk of the storm effect on imports and domestic production of crude oil in today's figures,'' Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut-based energy consultant, said in an e-mailed note. ``Most analysts are looking for a large drawdown in crude oil stocks, and if we get it, it is likely to generate buying.''

Hurricane Emily

The nation's distillate inventories probably rose by 1.65 million barrels last week, according to the survey, while gasoline stockpiles probably dropped by 1.5 million barrels.

Next week's U.S. inventory report may show a further drop in imports after Hurricane Emily forced the shutdown this week of 2.95 million barrels a day of Mexican production, or 86 percent, for at least three days.

The U.S. receives 17 percent, or 1.7 million barrels a day, of its total daily oil imports of about 10 million barrels from Mexico, the world's fifth-largest oil producer.

Petroleos Mexicanos, or Pemex, as Mexico's state-owned oil monopoly is known, said in a statement yesterday that platform crews would start returning to rigs in the Campeche Sound today after the evacuation of more than 15,000 workers. Operations will return to normal by July 22, the company said two days ago.

``It's only a temporary shutdown,'' said Lasserre at Societe Generale. ``We don't expect major damage on the Mexican platforms.''

Category 3

The storm, a Category 3 hurricane, is expected to make landfall in northeastern Mexico today, after skirting the oil- producing regions of the U.S. and Mexico. Total production in the Gulf of Mexico, when combining Mexican and U.S. fields, is almost 5 million barrels a day, or 6 percent of global output.

Some 2.5 million barrels of Mexico's daily total output of about 3.4 million is so-called heavy crude, according to Pemex. Heavy oil, which often has a higher sulfur content, is typically more difficult to refine into gasoline or diesel.

``Because of the quality of Mexican crude, it's not the type that is well in demand'' for production of fuels such as gasoline and heating oil, Lasserre said.

The Organization of Petroleum Exporting Countries, producer of 40 percent of the world's oil, is pumping almost at capacity to let inventories accumulate before an expected peak in consumption in the fourth quarter. Oil demand growth in the past two years has been led by China and the U.S., the world's largest user.

To contact the reporter on this story:
Alejandro Barbajosa in London at [e-mail]


LINK: http://www.bloomberg.com/apps/news?pid=10000086&sid=a8T5a4oI6kyQ&refer=latin_america