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Survey: Oil prices rise despite increase in crude supplies

Posted: Friday, June 09, 2000

LONDON (AP) -- Despite a springtime drop in demand for oil, crude prices are hovering around $30 per barrel and are likely to stay there in part due to tightness in U.S. gasoline markets, an industry report said Friday.

Refineries are buying as much oil as possible to make gasoline for sale this summer, when many motorists will hit the roads for vacation travel.

But OPEC is giving mixed signals about whether it will boost oil production to help meet that expected demand, so the outlook for cheaper oil in coming months is poor, the International Energy Agency reported.

Nor does the IEA see much likelihood that prices will ease at the pump. Gasoline inventories are meager, and the U.S. government is requiring that states sell cleaner-burning, costlier gas as a way of reducing auto emissions.

''Very strong gasoline demand in the U.S. is drawing product out of the system as fast as refiners can put it in,'' the IEA said. The Paris-based IEA is part of the Organization for Economic Cooperation and Development, a group of the world's wealthiest countries.

Oil prices rose in May despite a 0.8 percent growth in global output, with the U.S. benchmark West Texas Intermediate crude reaching an average of $27.70. On Friday, July contracts of West Texas crude were trading at $29.62 in New York.

The IEA estimated that global demand for oil will ease somewhat in the second quarter, to 74.4 million barrels per day from 75.1 billion barrels in the first quarter. The main reason, it said, is that higher prices have discouraged consumption.

Analysts blamed the tight market on OPEC's delay in increasing its production earlier this year.

''It's all OPEC's fault for not producing more oil back in January,'' said Leo Drollas, chief economist of the Center for Global Energy Studies in London. When the Organization of Petroleum Exporting Countries finally agreed to raise output in March, it only added about 500,000 fresh barrels per day to thirsty world markets.

''It was too little too late,'' Drollas said.

Another reason for higher oil prices is widespread skepticism about OPEC's commitment to its so-called ''price band'' -- a mechanism aimed at keeping oil prices stable within a range of $22 to $28 per barrel.

OPEC pumps 35 percent of the world's oil. In March it agreed to automatically produce 500,000 more barrels per day if a 20-day moving average of prices for several types of crude exceeded $28 per barrel.

The moving average for the crude basket crossed the $28 threshold for the first time on Wednesday, but OPEC has so far failed to boost output.

''They've created absolute confusion by backing off this price band as soon as it arrived on their doorstep,'' Gignoux said.

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On the Net: The International Energy Agency's site at http://www.iea.org.



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