Oil extends losses, dealers weigh demand
Washington offered to tap emergency reserves
LONDON – Oil prices fell further dropping below $63, as investors grew more convinced that high energy bills were crimping consumption and Washington offered to tap emergency reserves.
But some analysts argued demand for oil remained strong and that a bull run could resume as tight supplies of winter fuel are threatened by the closure of hurricane-battered U.S. refineries and strikes by oil workers in France.
U.S. light crude ended down $1.11 at $62.79 a barrel, after falling $1.57 on Tuesday, on the New York Mercantile Exchange. London Brent crude was down $1.19 to $60.03 on the International Petroleum Exchange.
«The expectation that the rate of demand destruction will outpace that of supply increase or recovery in the offshore (U.S.) gulf continues to weigh on energy prices, though the market certainly isn’t immune to further supply shocks,» analysts at Refco said in a report.
A dozen refineries accounting for 18 percent of U.S. total capacity remained shut after hurricanes Rita and Katrina, a daily loss of more than 1.3 million barrels of gasoline.
Washington said last week up to 15 percent of U.S. refining capacity could be out for at least another couple of weeks.
«The potential for product shortages to develop remains severe,» said Barclays Capital.
«We see limited further downside for crude oil, with a very solid floor now appearing to have been established for WTI in the low $60s, whilst continuing to highlight significant upside risk for products.»
The breakdown in U.S. refining prompted President George W. Bush to call for more plants in the United States.
«We have tight energy supplies,» Bush said. «When (hurricanes) shut down refineries, it creates a bubble in the system.»
U.S. refinery outages coincided with general strikes in France that have hit refineries in that major fuel exporter.
A two-week-long strike over wages had already closed Total’s 328,000-barrel-per-day Gonfreville refinery in northern France, the country’s biggest.
Oil has eased some since a record $70.85 was hit following Katrina at the end of August. But evidence is mounting that current prices, still historically high, are starting to dent consumer confidence.
«On the consumer level … the impact of rising gasoline prices has been more severe,» said Edward Meir of Man Energy.
U.S. demand for products has dropped under last year’s levels, the U.S. government said on Wednesday. Total oil products demand over the past four weeks averaged 19.9 million bpd, or 2.9 percent less than over the same period last year.
The latest oil stocks data from the U.S. Energy Information Administration, released on Wednesday, showed fuel stocks dropping sharply last week as refiners slowed processing rates to 70 percent, the lowest since at least 1990.
Gasoline stocks in the United States fell 4.3 million barrels in the week ended September 30 from the previous week, double analysts’ expectations.
Distillates, which include heating oil, declined 5.6 million barrels, sharply lower than analysts’ call of a 1.9 million barrel drop.
«Sooner or later the seriousness of the situation for U.S. product supply will begin to show in the weekly U.S. data releases, though it may still be too early for that today,» Barclays Capital said.