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Articles: Oil Sinks to 2-Month Low on Iraq Optimism

Posted by admin on Tuesday, June 29, 2004 - 12:44 AM

World oil prices sank to the lowest level in about two months on Tuesday as the handover of power to Iraq's interim government raised hopes of less sabotage on its oil infrastructure and steady exports.
While prices are set to dip further as OPEC has opened the taps, low gasoline stocks in the United States and persistently strong global demand are keeping the market from crumbling, analysts said. U.S. light crude lost 30 cents to $35.94 a barrel, the lowest since April 22, after sliding $1.31 on Monday, on news that Iraq had boosted exports after repairing sabotaged pipelines. London's Brent crude stood 25 cents lower at $33.45 a barrel after diving 3.6 percent on Monday. "Oil prices fell to the lowest level in over two months. The early handover is reducing fears of terrorist disruptions to oil supplies -- fears that had added at least several dollars to prices," said David Thurtell, commodity strategist with Commonweath Bank of Australia. Yet, he raised caution over market direction as some Arab commentators questioned if the Iraqis were winning real sovereignty, or if the handover was a cosmetic gloss. "The early handover in Iraq flummoxed the market. And direction will be confused until the market gets its mind around what has happened," Thurtell added. The United States handed sovereignty on Monday to an interim Iraqi government two days earlier than expected, seeking to avert attacks with a secret ceremony ending 14 months of occupation. As the July 4 holiday weekend nears -- a period that usually cranks up demand to seasonal highs -- analysts forecast U.S. gasoline inventories had fallen yet again last week as retailers stocked up on supplies. A Reuters poll of seven analysts, ahead of the release of U.S. Energy Information Administration data on Wednesday, forecast an average drop of 800,000 barrels in gasoline stocks in the week to June 25, extending a draw by that much the previous week. GLOBAL DEMAND RESILIENT However, commercial crude stocks were expected to show an average build of two million barrels, which would extend an uptrend to 18 of the past 22 weeks, including last week. The rise in U.S. crude stocks was expected to be capped by a recovery in refinery strength, analysts said, adding that global demand was not yet on the wane. "We expect growth of three percent in 2004 at 2.4 million barrels per day (bpd) and two percent in 2005 at 1.6 million bpd," Societe Generale (SG) said in market review. The U.S. share of global demand growth will rise to 28 percent in 2005 from 16.5 percent this year, led by auto fuels, it said. Even as Claude Mandil, executive director of the International Energy Agency (IEA), expressed confidence that less vigorous economic growth in China was easing the market, SG said that at best Chinese growth would lose a little of its vigor. "But the geopolitical context and the bottleneck of global refining capacity will maintain prices at levels extremely high by historical standards," SG said in the report. Still, IEA's Mandil said OPEC's decision to raise its output ceiling and a subsequent increase in actual production had shown that the cartel could be counted on to help stabilize prices. "The market now understands that they are reliable. Prices are declining but are still very, very high," Mandil said, adding that the risk of disruptions through sabotage remained. The Organization of the Petroleum Exporting Countries agreed earlier in June, when prices were at 21-year highs above $42, to raise its formal output limits by two million bpd from July 1. It also agreed to lift output by another 500,000 bpd from August 1.

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