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Home / Business / Companies / Energy

<EM>Oil: prices</EM>&nbsp;resume slide toward US$50 as supplies swell

15 Apr, 2005 11:36 PM4 mins to read

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NEW YORK - Oil prices resumed their slide on Friday from last week's record peaks as swelling stockpiles in the United States, the world's largest energy consumer, countered worries over rising global demand.

US light crude futures settled down 64 cents to US$50.49 a barrel, reversing a 91-cent gain on
Thursday. London Brent crude was down 61 cents at US$51.61 a barrel.

Prices dipped briefly below US$50 on Thursday for the first time since Feb. 22 before rebounding.

"The market has fallen a long way and needs to consolidate here," said Tony Nunan, head of risk management at Mitsubishi Corp. in Tokyo. "US$50 is a major support area. "

Prices have fallen about 13 per cent from last week's all-time high above US$58 a barrel, in part because of swollen crude stockpiles in the United States.

US crude oil stocks rose last week for the ninth time in a row, US government data showed, keeping them at their highest level since the summer of 2002. At that time, US crude oil futures were trading at around US$25 a barrel.

Petrol stocks are also up 6 per cent from a year ago, providing some cushion against the spike in seasonal demand that accompanies the US summer driving season.

The Group of Seven (G7) meeting this weekend will focus on the economic impact of high oil prices, although officials have said that US$50 a barrel oil has thus far not derailed expansion.

STILL HIGH

Despite the last two weeks' fall, prices are up 18 per cent since the end of 2004, bolstered by expectations that strong demand from China and the United States will keep producers and refiners working full throttle.

US Energy Secretary Sam Bodman warned on Friday that high prices for petrol and other energy sources will linger in the years ahead, as the United States consumes energy faster than the country can produce it.

The problem "has been years in the making and it is going to be years in solving," he said.

In an effort to build up stocks ahead of anticipated strong demand at the end of the year, top Opec exporter Saudi Arabia has allocated more oil to global customers in May.

Opec said on Friday that new production capacity from the group will help oil stocks build in coming months and be enough to cope with an expected late-year demand surge.

Opec capacity will grow by 1.6 million barrels per day to 32.7 million this year as big new facilities start in Kuwait, Nigeria and the UAE, Opec said in a monthly report.

Increased Opec supply will help make up for lower-than-expected production from countries outside the cartel, the report said.

"Even with the high expected demand for Opec crude, spare capacity should be more than adequate to accommodate the projected requirement," it said.

Some Opec members fear an overly large build in stockpiles could take months to work off, weakening prices.

"Opec will come to the realisation that they are pumping too much, as the higher output widens the crack spread, putting money into the refiners," said Nunan.

Dealers are also wary of signs that Chinese oil demand -- a key factor behind oil's two-year rally -- may be slowing more sharply than they expected.

Chinese oil companies have been exporting large volumes of diesel for three months, an unusual switch for a country that imported the fuel all last year.

The International Energy Agency said consumption growth in the world's second largest consumer slowed to 5.4 per cent in the first two month of year versus a heady 20.8 per cent the year-ago period.

- REUTERS

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