N.Y. Crude Oil Rises to Record on U.S. Gasoline Supply Concern

“OPEC members exceeded their quotas by 2.35 million barrels in April and their spare capacity equals about 4 percent of expected global demand in 2004, according to Bloomberg figures.”
N.Y. Crude Oil Rises to Record on U.S. Gasoline Supply Concern

May 14 (Bloomberg) — Crude oil futures rose to a record in New York and a 13-year high in London before the June contract expires for Brent, on concern gasoline will run short in the U.S. during the summer.

The benchmark contract reached $41.45 a barrel in after- hours trading on the New York Mercantile Exchange, beating its $41.15 high on Oct. 10, 1990, after Iraq invaded Kuwait.

Prices have climbed 27 percent this year. Demand for oil is now expected to record its biggest increase in 16 years in 2004 as the global economy expands. OPEC has limited power to lower prices, Indonesia’s OPEC governor said.

“As we head into the start of the U.S. driving season, everybody is going to focus on gasoline production,” said Shelley Mansfield, the energy manager at ADM Investor Services International in London. “Unless we have some significant builds in stocks, the market is going to keep climbing.”

U.S. crude oil for June delivery advanced 26 cents, or 0.6 percent, to $41.34 a barrel at 1:31 p.m. London time. Brent crude oil for June settlement added 17 cents to $38.66 a barrel on London’s International Petroleum Exchange, the highest intraday price since Oct. 15, 1990.

Low On Gas

U.S. gasoline inventories unexpectedly fell last week, leaving supplies 3.8 percent lower than the five-year average for the week, government data showed. Record demand has pushed prices to all-time highs with the travel season three weeks away in the U.S., the world’s biggest fuel user.

New regulations are making it harder to produce enough fuel for the summer. U.S. gasoline supplies usually rise in April and May as refiners step up production. Last week, they fell 1.5 million barrels to 202.5 million, according to the Energy Department.

“If the U.S. doesn’t like the price, the first thing it has to do is homogenize gasoline specifications and invest in more refining,” said Robert Mabro, the president of the U.K.-based Oxford Institute of Energy Studies. “People can bash OPEC as long as they want, but it’s not going to solve the problem.”

Gasoline for June delivery rose to a record $1.41 in after- hours Nymex trading, and pump prices have followed futures. Retail gas rose 2 cents to a record $1.95 a gallon yesterday, according to the AAA, formerly the American Automobile Association.

Going Long

Crude oil futures in London and New York rose on each of the past two Fridays as traders bought contracts and options to develop so-called long positions, betting prices would rise.

“It’s extremely unlikely anybody would like to go into the weekend with a short position,” ADM’s Mansfield said. The market “is going to stay strong.”

Oil prices have risen 42 percent from a year ago. The closest-to-delivery contract climbed to the highest price since crude began trading on the New York Mercantile Exchange in 1983.

The Organization for Economic Cooperation and Development raised its forecast for economic growth among its 30 members to an average 3.4 percent this year, up from a 3 percent forecast in November. The forecast was published Tuesday.

Faster growth is creating more demand for oil. The International Energy Agency on Wednesday said demand this year will increase by 1.95 million barrels a day to 80.6 million, the biggest gain since 1988. Higher prices for oil eventually will cause growth to slow, analysts said.

“With each dollar we go above where we are now, that increases the potential that we may have some real slowing down in global economic growth,” said James Burkhard, director of oil market analysis for Cambridge Energy Research Associates in Cambridge, Massachusetts.

OPEC Talks

The Organization of Petroleum Exporting Countries, which pumps more than a third of the world’s oil, will discuss higher quotas when its members meet in Amsterdam from May 22 until May 24 for the International Energy Forum, OPEC President Purnomo Yusgiantoro said in Jakarta yesterday.

“There is a willingness of OPEC to stabilize the market,” said Maizar Rahman, Indonesia’s OPEC governor, said by phone from Vienna, where he is acting for Indonesian energy minister Purnomo Yusgiantoro as OPEC secretary-general. “Our control is only in the oil supply. There are many factors beyond our control.”

OPEC members exceeded their quotas by 2.35 million barrels in April and their spare capacity equals about 4 percent of expected global demand in 2004, according to Bloomberg figures.

“OPEC will do quite possibly nothing,” ADM’s Mansfield said. “They will just try to say they are well aware of the problem and that they don’t want to destabilize the market. It will be a very delicate negotiation.”

Adjusted for inflation, oil prices were higher in the early 1980s, when Iran and Iraq were at war. The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department. That’s $72.61 in 2004 dollars. In 1974, a barrel of oil averaged $9.07, which would be $34.46 today.

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