Oil: Price holds at US$51 as US crude stocks ease

NEW YORK - Oil prices held firm at US$51 a barrel on Thursday, holding Wednesday's 2.6 per cent gain on news of a surprise drop in US crude inventories.

Analysts said they expect strong demand this summer driving season to continue to eat away at US crude stockpiles, pulling them down from near six-year highs.

US light sweet crude for July delivery settled up 3 cents to US$51.01 a barrel after a jump of US$1.31 on Wednesday. Brent crude firmed 9 cents to US$50.16 a barrel.

"The latest data may finally be signalling an end to the substantial builds ... in the US crude stocks," Martin King, analyst for FirstEnergy Capital, said in a report.

Fund managers said the two-week dip below US$50 that ended on Wednesday had lured more buyers in.

"I think when it was sub-US$50, people saw that as an opportunity to get involved in the market," said Mark Keenan of MPC Commodity Fund.

He predicted long-term price strength, though he said trade could be choppy in the immediate future as key technical levels are tested and the market closes early on Friday ahead of the US Memorial Day weekend.

"My overall view has not changed. I think it is just a question of how we behave in the short-term," Keenan said.

Opec production at 25-year highs had boosted stocks in the United States to their highest since 1999, but analysts predict that higher refinery activity during the summer driving season could mean looming declines in stockpiles.

The latest data released on Wednesday showed crude oil stocks in the United States fell by 1.6 million barrels to 332.4 million barrels in the week ended May 20 -- against analysts' forecasts for a 1.2 million-barrel-build.

US petrol supplies rose by 600,000 barrels to 215.4 million barrels, leaving them in the upper end of the average range for this time of the year.

Many analysts say they should be adequate, though demand is expected to be very high.

The AAA auto and travel group said in a survey last week a record number of drivers would take to the roads over the upcoming Memorial Day weekend.

Demand is also still high in China, though the rate of growth has cooled from last year's levels.

Chinese implied oil demand grew by 2.3 per cent in April compared with the same month of 2004, slowing from an estimated 7.3 per cent rise in March, Reuters calculations based on government data showed on Thursday.

Opec meets in Vienna on June 15 to reconsider its output policy, which many ministers have suggested will remain unchanged as the cartel seeks to build global stockpiles ahead of high demand in the fourth quarter.

Algeria's Energy Minister Chakib Khelil warned on Wednesday oil prices could rise further in coming months as rising demand strained world supplies.

He said the risk of further price gains would deter Opec oil producers from reducing current oil production, which Opec sources have said is above 30 million barrels per day (bpd).

- REUTERS