Oil prices set new record as US stocks fall

Oil prices set new record as US stocks fall

London (Platts)--18Aug2004


US crude oil futures opened at an all-time high of $47.20/bbl Wednesday and
scrambled to a new record of $47.35/bbl for the light sweet crude oil contract
traded on NYMEX after US weekly crude oil and products inventory data showed a
fall in crude oil stocks. Although the reported stock draws were smaller than
the market had anticipated, the news hit an already bullish market, which had
opened firmer in London. 

London's IPE futures opened higher on reports of further threats by Shi'ite
militants in Iraq against the sole operating pipeline in the country's south.
But both IPE and NYMEX crude oil futures prices eased back after the brief
spike. "We're swaying between both the stats and Iraq developments," said one
Brent dealer. "The stats were largely in line with expectations but are
constructive," he said.

The US Department of Energy reported a draw in US commercial crude inventories
of 1.3-mil bbl, less than the 3-mil bbl draw analysts had anticipated and less
than the 1.5-mil bbl draw reported by the American Petroleum Institute. The
draw in crude inventories was smaller than had been expected, but came as no
surprise to traders after recent shut-ins in the US Gulf Coast due to Tropical
Storm Bonnie. The DOE reported a 2.6-mil draw in US gasoline stocks, while
distillates rose by 2.1-mil bbl. By 1556 GMT, Sept NYMEX eased back to
unchanged at $46.75/bbl after reports from Baghdad that Shiite militia leader
Moqtada Sadr had agreed to disarm and quit a holy shrine in Najaf as demanded
by Iraq's key national conference.

The latest price surge coincided with new reassurances from oil exporters'
cartel OPEC that its crude output would be "more than adequate" to meet oil
demand for the remainder of 2004 and 2005. OPEC's Vienna secretariat said in
its just-released Monthly Oil Market Report that it expected crude production
from its eleven members to reach 30-mil b/d in August and 30.5-mil b/d in
September, up from 29.57-mil b/d in July. 

"These levels of production are well above OPEC estimates for the difference
between [world] demand and non-OPEC supply for the third quarter of 26.8-mil
b/d and also above the IEA [International Energy Agency] estimate for the same
period of 27-mil b/d," the report said. "On current trends OPEC production
will be more than adequate to meet demand in the remainder of 2004 and 2005."

OPEC insisted that higher output from the producer group this year had already
made "a substantial contribution" to restoring stability to world oil markets.
But it warned that the sharp rise in global oil demand due to rapid economic
growth in India and China had heightened perceptions of the risk that a
significant supply interruption could push prices further upward, and called
for steady investment in capacity expansion in the major oil producing
countries. 

OPEC has ignored official crude output quotas and ceilings--currently set at
26-mil b/d for ten members but not Iraq--in its efforts to try to curb rising
oil prices by boosting production. But rising OPEC output has so far failed to
stop the relentless upwards surge in prices that saw OPEC's own basket hit
$41.75/bbl--nearly $14 above the $28/bbl top end of the group's redundant
$22-28/bbl target band--Tuesday. Indeed, concerns are growing about the
diminishing volume of the cartel's surplus production capacity.

This story was first published in Platts real-time news and market reporting
service Platts Global Alert
(http://www.platts.com/Oil/Real-Time%20Information/Global%20Alert/ ).

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