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"Beijing's thirst for crude will come in around 6.64 million barrels daily in 2005, a 3.2 percent rise on year. But the agency predicted it would "rebound" to 7 percent in 2006."

Crude Oil Prices Climb on Demand Concerns
Wednesday October 12, 6:31 am ET
By George Jahn, Associated Press Writer
Crude Oil Prices Rise on Fears Slowing Demand May Be Temporary; Spike Again in 2006


VIENNA, Austria (AP) -- Crude oil prices rose Wednesday, extending their gains from a day earlier on fears that a recent dip in demand would be short-lived.
Forecasts of a possible shortage of petroleum products into 2006 also sent prices higher, with the International Energy Agency warning that refineries they would need to pump at full tilt to keep pace with demand.

Light, sweet crude for November on the New York Mercantile Exchange rose 46 cents by midday in European trading to $63.99 a barrel.

In New York on Tuesday, the contract had jumped $1.73 to close at $63.53 after the Paris-based IEA said demand would fall for the rest of the year but rebound in 2006.

On London's International Petroleum Exchange, November Brent crude gained 46 cents to $60.54 a barrel.

The IEA, the energy watchdog for industrialized countries, cautioned of a prolonged loss of oil production in the Gulf of Mexico, saying output in non-OPEC supplies in 2005 and 2006 would fall by 300,000-400,000 barrels per day. It also said its member nations may have to dip into reserves to meet demand.

Demand from Asia's largest energy consumer, China, was also likely to pick up into the new year, the IEA said.

Beijing's thirst for crude will come in around 6.64 million barrels daily in 2005, a 3.2 percent rise on year. But the agency predicted it would "rebound" to 7 percent in 2006.

The IEA's monthly outlook was the first in a series of potential market-moving forecasts to be released this week, with the U.S. Energy Information Administration's short-term energy report out later Wednesday and its weekly petroleum data snapshot to follow Thursday.

"I think we're moving higher," said Edward Meir, a commodities analyst for Man Financial Inc. in New York. "I think the downward correction could be over."

Vienna's PVM Oil Associates pinpointed the disappointing non-OPEC growth figures as a source of supply concern.

"The particularly worrying thing about this development is that six years ago, depressed oil prices caused a cutback in production growth, while this time record high oil prices would provide every incentive to ... maximize output," it said.

Prices are now double those of 2003, but are still off the all-time high of $70.85 a barrel set Aug 30 because of Hurricane Katrina.

Katrina and its successor, Rita, sliced through a large arc along the Texas-Louisiana-Mississippi shoreline, damaging or shutting down several major U.S. oil refineries.

While refineries along the Gulf Coast are slowly returning to service, plants accounting for almost 3 million barrels per day of gasoline, heating oil and jet fuel output -- about 18 percent of total U.S. output -- remain shut or are operating at reduced rates.

And, as of Tuesday, 70 percent of daily oil production and 60 percent of daily natural-gas production in the Gulf of Mexico was down, according to the federal Minerals Management Service.

There have been "little in new gains in the last few days, indicating that much of the easy supply has been turned back on and further gains could be slower," said Energyintel analyst Tom Wallin.

"The size of the supply hole is gradually becoming clearer," Wallin added.

In other Nymex prices, heating oil was up nearly a penny to $2.0262 a gallon, gasoline rose almost half a cent to $1.8378 a gallon, while natural gas moved up 7 cents to $13.592 per 1,000 cubic feet.

Associated Press Writer En-Lai Yeoh in Singapore contributed to this report.