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Oil prices dive on US demand fears
NEW YORK
Petroleumworld.com, Mar 19, 2008
Crude oil prices swung sharply lower Wednesday after a US government energy report signaled softening demand in the world's biggest economy.
New York's main oil contract, light sweet crude for delivery in April, plummeted 4.94 dollars to close at 104.48 dollars a barrel. The futures contract, which had hit a record peak of 111.80 dollars on Monday, expired at the close.
In London, Brent North Sea crude for May sank 4.84 dollars to settle at 100.72 dollars. It struck an all-time peak of 107.97 on Monday.
Traders focused on the global credit squeeze amid concerns over the impact it might have on global economic growth and oil demand, and largely overlooked the headline US energy inventory data showing a smaller-than-expected rise in crude supplies.
The US Energy Information Administration (EIA) said crude stocks rose by just 200,000 barrels to 311.8 million barrels in the week ended March 14, about average for this time of the year. Markets were expecting stocks to rise by around 2.3 million barrels.
The EIA also reported a decline in crude imports and much lower-than-expected crude demand in the form of falling refinery runs.
It also reported unexpectedly large declines in both gasoline and distillate supplies.
Still, oil prices plunged as markets remained concerned about worsening credit conditions the world over which are threatening global economic growth and possibly oil demand.
"The data was a tad bullish ... but I wouldn't say it's earth-shattering again because sentiment has changed. Previously the market was willing to discount negative news (and go up), now sentiment has gone the other way," said MF Global analyst Mike Fitzpatrick.
Earlier this week, commodity prices jumped to record heights as they were energized by the weak dollar and as investors sought a safer refuge for their cash than volatile world stock markets.
"Oil is still too high especially if you compare the front to the back months," said Phil Flynn at Alaron Trading.
"Maybe the market is looking for demand to fall in the near future or for inflation to moderate but whatever the reason, the spread is still way too high."
MF Global's John Kilduff agreed.
"The market probably cannot sustain prices at much higher levels, unless a more optimistic economic outlook takes hold, the anxiety in capital markets calms down, or the dollar makes another leg lower," he said.
The EIA report indicated weakening US demand in a sluggish economy that grew only 0.6 percent in the 2007 fourth quarter. Over the past four weeks, consumption of petroleum products was 20.3 million barrels per day on average, or 3.2 percent less than a year ago.
Demand for distillates such as heating oil, particularly strong during the winter, totaled an average 4.2 million barrels a day over the past four weeks, down 5.4 percent from the same period in 2007.
Crude oil prices closed lower Monday after hitting historic heights on the back of the plunging US dollar, which hit a record low against the euro. The weak US currency encourages demand for dollar-priced commodities because they become cheaper for buyers using stronger currencies.
On Tuesday, however, crude futures shot up by more than three dollars after the US Federal Reserve slashed three-quarters of a point off interest rates, stoking market expectations of stronger US energy demand.
burs-vs/rl
Story from AFP
AFP 19 1953 GMT 03 08Copyright© 2008 respective author or news agency. All rights reserved.
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