Oil: Price leaps 2.6 per cent as US stockpiles fall

NEW YORK - Oil prices surged 2.6 per cent on Wednesday (US time) after a report from the US government showed an unexpected fall in crude inventories in the world's largest energy consumer, pulling supplies down from 6-year peaks.

US light sweet crude ended up US$1.31 to US$50.98 a barrel, breaking the US$50 mark for the first time since May 12. Brent crude settled US$1.25 higher at US$50.07 a barrel.

The strength in prices brings crude oil more than 10 per cent above its low of US$46.20 hit last week -- a trough that had been encouraged by swelling US crude stockpiles and the highest Opec output in 25 years.

Wednesday's gains came after the US Energy Information Administration reported US crude stocks fell last week by 1.6 million barrels, countering expectations of another build.

Higher refinery demand and limited imports going into summer will likely spell additional declines in stockpiles, which had risen sharply over the past 15 weeks to their highest level since 1999, the EIA said.

"The bottom line is that the overall stocks are huge. But the tightening in stockpiles is finally beginning," said Jan Stuart, an analyst at Fimat USA.

US oil refineries typically process more crude oil in the late spring and summer months to provide enough fuel for summer motorists and build up winter fuel stockpiles ahead of the heating season.

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 US Memorial Day weekend, the traditional kick-off to the peak demand summer driving season.

Opec PUMPS AT 25-YEAR HIGH

Opec producers increased output to above 30 million barrels-per-day (bpd) in May to help build global stockpiles ahead of expected high demand in the fourth quarter, with Saudi Arabia contributing around 9.5 million barrels per day, an Opec delegate said Wednesday.

Estimates of the producer group's actual production have varied considerably. An Opec source had said earlier on Wednesday that Saudi Arabia had raised production by 150,000 bpd this month to 9.65 million bpd.

Opec President Sheikh Ahmad al-Fahd al-Sabah, also Kuwait's oil minister, said earlier this month that Saudi output was running at almost 10 million bpd.

Most Opec ministers have signaled there should be no change in output policy when the group next meets to discuss policy on June 15 in Vienna.

Surging demand from China played a major role in bringing about the rally that pushed US crude futures to a record US$58.28 at the start of April.

Demand is still growing in China, but the rate of growth has slowed compared with last year.

In the latest indication on Wednesday, the National Development and Reform Commission said China would consume 170 million tonnes of refined oil products in 2005, eight per cent more than it did last year.

But the growth would be lower than last year's 19 per cent, said Zhu Hongren, vice director of the commission's Economic Operations Bureau.

Under pressure to do more to bring down soaring energy prices, US President George W. Bush pointed the finger at US lawmakers on Wednesday he said have been "talking too long" on his proposed energy bill.

The bill would encourage increased domestic production to offset foreign imports.

- REUTERS