Crude Oil Approaches $56 on Concern About U.S. Gasoline Supply
Crude Oil Approaches $56 on Concern About U.S. Gasoline Supply
April 1 (Bloomberg) -- Crude oil approached $56 a barrel in New York and gasoline rose to a record for a second day on concern that U.S. stockpiles of the motor fuel are falling faster than expected before a summer peak in demand.
Goldman Sachs Group Inc. analysts predict oil may touch $105. U.S. refinery maintenance is slowing the processing of crude supplies, which are surging as OPEC pumps almost all it can. When plants raise output, they still won't be able to refine all the crude that's accumulating in storage, said Craig Pennington, head energy analyst at Schroders Plc in London.
``If you don't have the refining capacity to process all that crude, the surplus in gasoline supplies will slowly but surely disappear,'' Pennington said. Goldman's scenario is possible, he said, with a sustained supply disruption such as ``an invasion of a major oil producer like Iran or a strike in Venezuela,'' which have happened in the past three years.
Crude for May delivery rose 49 cents, or 0.9 percent, to $55.89 a barrel at 1:48 p.m. London time on the New York Mercantile Exchange, where prices reached a record $57.60 March 17. Brent crude for May jumped 69 cents to $54.98 on London's International Petroleum Exchange, up 36 percent this year.
Oil, which has gained 63 percent in New York in the past year, has only surpassed $56 a barrel in six days since futures contracts were introduced on the Nymex in 1983. Gasoline futures for May rose 1.2 percent to $1.6826 a gallon, a record for the contract closest to delivery, at 1:56 p.m. London time.
Gasoil, the equivalent of heating oil in London, touched a record $525.25 a metric ton on the IPE, adding as much as 2.1 percent. Refinery units are often shut at the end of winter to be refurbished and allow technicians to increase the percentage of crude made into gasoline.
Disruptions
``The main two concerns are the overall picture of a surge in oil demand with possible supply disruptions, and a lack of refining capacity,'' said Tor Kartevold, an oil markets analyst for Statoil ASA, the biggest oil company in Norway. ``This will continue as long as growth in the world economy is keeping up.''
Oil-importing countries of the Organization for Economic Cooperation and Development should be ``better prepared'' to cut fuel demand and use emergency crude stockpiles in case of supply disruptions, Pierre Nesevre, a spokesman for the International Energy Agency, said today.
The IEA, which advises 26 oil-consuming nations on energy policy, is preparing a report for its ministerial meeting planned at the end of April with a set of measures that may help lower demand for oil, Nesevre said. The study will recommend transport measures to encourage speed limits and car-pooling to reduce traffic and cut demand for fuel, he said.
Oil-Based Costs
``In the OECD area, rising oil and oil-based costs act like a consumption tax,'' said Jan Randolph, head of economics and forecasting at Global Insight Inc. in London. ``The middle classes have absorbed the increases so far relatively well on overall consumption demand, but if oil rises another $10 to $20 per barrel, the strain will definitely be felt much more.''
The Organization of Petroleum Exporting Countries, producer of about 40 percent of the world's oil, will let inventories climb in the second quarter, when demand usually drops, to ensure supplies will be sufficient to meet rising demand in the fourth quarter.
``There isn't much OPEC can do,'' Kartevold said. ``Most countries are producing at full capacity.''
OPEC raised its production quota on March 16 to 27.5 million barrels a day, a record for the 10 members restrained by self- imposed limits, all except Iraq.
U.S. gasoline demand peaks during the so-called driving season, which runs from Memorial Day at the end of May to Labor Day at the beginning of September. The nation's stockpiles have dropped in the past four weeks and the last two declines were bigger than expected.
Refining Capacity
``Much stronger-than-expected demand has eroded spare refining capacity and oil-product stocks,'' said Deborah White, a commodities economist at Societe Generale in Paris. ``Those losses are permanent. They cannot be made up so long as the refining complex is running essentially flat out. This creates a ratchet effect, taking prices higher and leaving them higher even when they soften.''
Record retail average prices in the U.S. of $2.153 a gallon the week ended March 28 have so far failed to damp demand. High prices correspond to falling inventories in terms of the number of days of consumption that can be met, according to the U.S. Energy Department. In absolute terms, U.S. gasoline supplies were still 6.7 percent higher than their five-year seasonal average last week.
``In theory, crude oil and gasoline can go in opposite directions as a function of inventories and demand,'' Pennington of Schroders said. ``The two markets could become dislocated.''
U.S. crude oil inventories surged to their highest since July 2002 after the country imported the most oil this year last week. A continued increase of crude inventories may lower prices next week, a weekly Bloomberg survey of traders and analysts showed.
Forecast
Twenty-six of 45 respondents, or 58 percent, predicted oil prices will fall next week. Thirteen, or 29 percent, said they will rise, and six forecast little change.
A trading range for oil of $50 to $105 a barrel over a multiyear period is necessary to ``meaningfully reduce energy consumption and recreate a spare capacity cushion,'' according to a March 30 report from Goldman Sachs analysts led by Arjun Murti.
``The report was prepared by equity analysts who don't necessarily follow commodities first,'' Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut-based energy consultant, said in a note.
``We don't disagree that prices could top $100, but we feel it's easier to get there using psychology than it is using fundamentals'' of supply and demand, Beutel said. ``There is no proof yet that $55 a barrel oil isn't hurting the economy.''
To contact the reporter on this story: Alejandro Barbajosa in London at abarbajosa@bloomberg.net.
To contact the editor responsible for this story: Stephen Taylor at staylor8@bloomberg.net
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