Reality bites: High oil price erodes demand
http://economictimes.indiatimes.com/articleshow/1230187.cms
LONDON: Oil steadied above $63 a barrel on Tuesday after a slide sparked by evidence that high prices were starting to slow global economic growth and curb US fuel demand. Losses were checked by worries that the US oil industry’s recovery from Hurricane Katrina two weeks ago had stalled, leaving 5% of the country’s refining capacity and nearly half its Gulf of Mexico oil production offline.
US light crude was up 39 cents at $63.8 a barrel, after dropping 74 cents in New York on Monday. Prices are more than $7 below record highs hit two weeks ago. London Brent crude rose 39 cents to $62.2 a barrel, after falling more than $1 on Monday.
Crude oil spiked to $70.85 a barrel and US retail gasoline shot above $3 a gallon after Hurricane Katrina slammed into the US Gulf Coast in late August, cutting nearly all offshore production and shutting eight refineries. But for consumers, the worst may be over.
“The recent run up in prices should be enough to start demand retardation and to grind down prices over the next few years,” said Credit Suisse First Boston. Prices have been marching higher for the past two years as the world struggles to pump and refine enough oil to satisfy thirsty consumers in the US and Asia.
US crude, up 46% since the start of the year, has been supported by investors piling into energy and out of low performing bond and equities markets.
Analysts say the economic shock from the disaster and ensuing oil rally may curb the rapid growth in oil consumption that has doubled crude prices in the past two years. “While we do see signs of demand slowing, we still do not anticipate a crash,” said a JP Morgan report.
Fears of a gasoline-supply crunch in the world’s top oil consumer have eased after emergency imports and the post-summer drop in demand.
China, whose voracious oil import appetite took the world by storm last year, cut its August crude imports by 6.1% from the year-ago period to their lowest levels in eight months at 2.1m barrels per day (bpd). Undermining prices further, the world’s second largest oil consumer reiterated on Tuesday it would not use imported crude to fill newly constructed strategic reserves.
Despite bearish market signs, dealers remained worried that a drawn-out recovery from Katrina will stretch supplies ahead of the peak demand during the northern hemisphere winter.
European governments were struggling to head off protests over soaring fuel prices and called on Opec to boost production. But this time round, the supply problem is on refined products — not crude.
For its part, the oil cartel has raised crude output sharply over the past years, up more than four million bpd to about 30m bpd, and is now operating close to full capacity.
LONDON: Oil steadied above $63 a barrel on Tuesday after a slide sparked by evidence that high prices were starting to slow global economic growth and curb US fuel demand. Losses were checked by worries that the US oil industry’s recovery from Hurricane Katrina two weeks ago had stalled, leaving 5% of the country’s refining capacity and nearly half its Gulf of Mexico oil production offline.
US light crude was up 39 cents at $63.8 a barrel, after dropping 74 cents in New York on Monday. Prices are more than $7 below record highs hit two weeks ago. London Brent crude rose 39 cents to $62.2 a barrel, after falling more than $1 on Monday.
Crude oil spiked to $70.85 a barrel and US retail gasoline shot above $3 a gallon after Hurricane Katrina slammed into the US Gulf Coast in late August, cutting nearly all offshore production and shutting eight refineries. But for consumers, the worst may be over.
“The recent run up in prices should be enough to start demand retardation and to grind down prices over the next few years,” said Credit Suisse First Boston. Prices have been marching higher for the past two years as the world struggles to pump and refine enough oil to satisfy thirsty consumers in the US and Asia.
US crude, up 46% since the start of the year, has been supported by investors piling into energy and out of low performing bond and equities markets.
Analysts say the economic shock from the disaster and ensuing oil rally may curb the rapid growth in oil consumption that has doubled crude prices in the past two years. “While we do see signs of demand slowing, we still do not anticipate a crash,” said a JP Morgan report.
Fears of a gasoline-supply crunch in the world’s top oil consumer have eased after emergency imports and the post-summer drop in demand.
China, whose voracious oil import appetite took the world by storm last year, cut its August crude imports by 6.1% from the year-ago period to their lowest levels in eight months at 2.1m barrels per day (bpd). Undermining prices further, the world’s second largest oil consumer reiterated on Tuesday it would not use imported crude to fill newly constructed strategic reserves.
Despite bearish market signs, dealers remained worried that a drawn-out recovery from Katrina will stretch supplies ahead of the peak demand during the northern hemisphere winter.
European governments were struggling to head off protests over soaring fuel prices and called on Opec to boost production. But this time round, the supply problem is on refined products — not crude.
For its part, the oil cartel has raised crude output sharply over the past years, up more than four million bpd to about 30m bpd, and is now operating close to full capacity.
posted by Marcel at 12:32 AM
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