Crude Oil Declines as Global Supply Gains Faster than Demand

Crude oil futures in New York fell, extending last week’s decline from a record, on speculation of ample supplies when global consumption peaks in the third and fourth quarters.

“The world already has a surplus of more than 2 million barrels a day,” Indonesian Oil Minister Purnomo Yusgiantoro, a former OPEC president, said today at an oil seminar in Jakarta. The Organization of Petroleum Exporting Countries, source of 40 percent of the world’s oil, may increase its oil-output ceiling if demand surges, Purnomo said.

Bloomberg.com

Crude oil futures in New York fell, extending last week’s decline from a record, on speculation of ample supplies when global consumption peaks in the third and fourth quarters.

“The world already has a surplus of more than 2 million barrels a day,” Indonesian Oil Minister Purnomo Yusgiantoro, a former OPEC president, said today at an oil seminar in Jakarta. The Organization of Petroleum Exporting Countries, source of 40 percent of the world’s oil, may increase its oil-output ceiling if demand surges, Purnomo said.

“Prices are falling because of a combination of lower demand and rising inventories,” said Lannie Cohen, president of Capitol Commodity Services Inc., an Indianapolis-based brokerage.

Crude oil for May delivery fell 44 cents, or 0.8 percent, to $54.40 a barrel at 1:34 p.m. on the New York Mercantile Exchange. Prices touched a record $57.60 a barrel on March 17.

Commercial oil inventories held by U.S. refiners and chemical companies rose by 4.1 million barrels, or 1.3 percent, to 309.3 million in the week ended March 18, the highest since July 2002, the Energy Department in Washington said last week. U.S. demand for gasoline and other fuels declined 1.9 percent, the second drop in three weeks.

Oil prices have jumped 67 percent since the beginning of 2004 amid higher-than-expected demand in China, the U.S. and India, and supply disruptions in the Gulf of Mexico, Nigeria, Iraq and Norway.

Rising Demand

Worldwide demand is forecast by the International Energy Agency to rise 2.2 percent this year to 84.3 million barrels a day. U.S. demand for gasoline, diesel and other fuels is up 3.6 percent so far this year to 20.787 million barrels a day from 20.065 million during the same period in 2004.

“I see very little evidence that world demand will do anything but continue climbing,” former U.S. Energy Secretary Spencer Abraham said today in an interview. “Obviously, this will have upward pressure on prices.”

Oil prices were expected to fall this week, according to a Bloomberg survey of 43 analysts and traders on March 25. Twenty of the respondents, or 47 percent, said prices would decline. Twelve, or 28 percent, said they would rise and 11 forecast little change. Nineteen of the last 26 surveys correctly predicted the market’s direction.

Crude-oil futures may find so-called support at $53.98 and $53.84, based on a 30-minute Fibonacci graph, a trading tool that uses ratios developed by a 13th-century mathematician to discern key price levels.

Gasoline Falls

Gasoline futures fell from a record as declining crude prices and rising inventories of oil and fuel eased concern about supply shortfalls later this year.

Gasoline for April delivery dropped 1.92 cents, or 1.2 percent, to $1.58 a gallon on the New York exchange. The futures touched a record $1.608 on March 24 after an explosion at a BP Plc plant in Texas City, Texas, killed 15 people and shut some production at the third-largest U.S. refinery on March 23.

The rising value of the dollar against the euro and yen may start to chip away at demand if the gains are sustained, said Tod McElhaney, president of Chicago-based LaSalle Futures Group.

A stronger dollar forces European and Japanese oil buyers to spend more of their own currency to acquire dollar-denominated commodities such as crude oil. So far, the dollar hasn’t risen enough to have an effect on buying by European and Japanese refiners or traders, McElhaney said.

Strengthening Dollar

“If the dollar strengthens and holds on to its gains, we should see an impact because it causes an increase in costs to the Europeans and everyone else in the world,” McElhaney said. “But I don’t know how long the dollar is going to continue to rise.” McElhaney, who has been trading oil and currencies for 15 years, said recent gains by the dollar will probably be “short- lived.”

So far, European refiners haven’t benefited much from the decline in New York oil prices. Crude for May delivery cost the equivalent of 42.03 euros at 11:24 a.m., down 0.8 percent from 42.39 euros on March 17. That compared with a 6.3 percent drop during the same period in the dollar price of a barrel of oil.

World oil markets are well supplied and buyers aren’t seeking additional cargoes, Qatar’s Abdullah bin Hamad al- Attiyah, a former president of the Organization of Petroleum Exporting Countries, told reporters in Tokyo yesterday.

“We believe there is no shortage of supply,” al-Attiyah said yesterday. “Traders aren’t asking for extra cargoes,” so any output increase by the group must be carefully considered, he said.

OPEC said in Iran on March 17 that it might raise its output quota to about 28 million barrels a day as early as April. The cartel agreed to raise quotas by 500,000 barrels a day to 27.5 million barrels after crude oil prices surged to a record, threatening to slow global economic growth.

The Nymex was closed on March 25 for the Good Friday holiday. London’s International Petroleum Exchange, where the Brent crude benchmark is traded, is closed today for the Easter Monday holiday.