August 25, 2004
USA Today
By Andrew Mitchell, Reuters
LONDON — Oil prices fell nearly $2 a barrel Wednesday, dragged down by heavy losses in U.S. gasoline futures after summer driving demand failed to meet expectations.
U.S. light crude on the New York Mercantile Exchange ended down $1.74 to settle at $43.47 a barrel, lowest closing since Aug. 4. It fell as low as $43.22 during the day.
London Brent closed down $1.64 at $40.68 a barrel.
Prices are now down nearly $6 from record highs last week.
Sellers overwhelmed the market after the U.S. Energy Information Administration said U.S. gasoline stocks were unchanged at 205.7 million barrels last week, near the upper end of their five-year average.
Analysts had expected gasoline supplies to decline due to summer vacation consumption, but the EIA said gasoline demand the past four weeks was just 0.7% higher than last year.
"Gasoline appears to be the weakest link in the complex right now. That's typical, as we're just 10 days until the end of the summer driving season," said Marshall Steeves, a market analyst at Refco Group.
The weak performance in gasoline supplies outweighed a fall of 1.7 million barrels in crude stocks to 291.3 million barrels, pulling inventories to their lowest level in five months.
Crude stocks fell as refineries worked at 96% of capacity, eating up feedstocks at a rate of 16.05 million barrels per day (bpd).
"We're seeing runs at unusually strong pace for this time of year, chewing into crude supplies," said Jim Ritterbusch, president of Ritterbusch and Associates.
Diesel fuel demand this summer has been unusually high, due in part to surging freight activity and manufacturing. Distillate fuel demand, including diesel, is running more than 7% above last year.
Oil prices fell this week after Iraq restored full crude exports of 2 million barrels a day from its southern Basra fields and restarted deliveries at 450,000 bpd, half capacity, from its northern Kirkuk fields for the first time since May.
Worries about an output cut from Russia's leading producer, Yukos, which is battling to avoid bankruptcy, have also eased after Russian President Vladimir Putin gave President Bush an assurance on Russian supplies.
Russia has allocated Yukos its usual crude export levels through major ports in September, including 520,000 tons through the Baltic port of Primorsk, where volumes will set a record.
So far there is not much evidence that fuel costs are undercutting economic growth, either in big industrial powers or in emerging economies such as China and India.
European Central Bank President Jean-Claude Trichet said Wednesday that the bank's outlook for euro zone growth remained unchanged.
"All things considered, petrol prices and all the rest, I don't think there is a need to revise downwards our forecasts for growth for the euro zone," Trichet said.
He said the situation is not comparable to the energy crises of the 1970s and 1980s, because current oil price increases are not on the same scale and economies now are better protected against fuel costs.
The average Brent price, the benchmark for Europe, has risen 22% this year, to $34.70 a barrel from $28.48 in 2003. Brent is up 260% from an average of $13.34 in 1998, when prices crashed, but that compares with a three-fold price jump over a few months in the winter of 1973-1974, during the Arab oil embargo.
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