LONDON, 31 March 2005 — World oil prices fell sharply yesterday as US stocks data showed a strong rise in crude inventories to a level last seen in July 2002, easing supply concerns, dealers said.
New York’s main contract, light sweet crude for delivery in May, plummeted $1.43 to $52.80 per barrel in early deals, the lowest level since March 2. In London, the price of Brent North Sea crude oil for delivery in May tumbled $1.23 to $51.80 per barrel, its lowest since March 8.
Prices fell after the US Department of Energy’s weekly snapshot of stocks showed a strong rise in crude levels, combined with a fall in distillates and gasoline reserves. “The figures have been the same for the past seven eight weeks: crude up, products down”, said Investec analyst Bruce Evers. “The big sell off is on the back of the rise in crude inventories: Nothing more, nothing less. It does demonstrate that there seems to be enough oil around for the second quarter. It remains to be seen.”
The DoE said crude oil reserves rose 5.4 million barrels to 314.7 million in the week to March 25 - much stronger than the 2.0 million barrel gain expected by market analysts — and after the previous week’s rise of 4.0 million. It was the biggest weekly increase in crude stocks since October, with crude inventories now at their highest level since July 2002. And the American Petroleum Institute (API) said its survey showed an increase of 2.61 million barrels of crude oil to 317.28 million.
The drawdown in gasoline supplies was twice as big as expected by financial markets, with the DoE reporting a drop of 2.9 million barrels to 214.4 million.
The API survey showed a slightly smaller decline of 1.9 million barrels to bring reserves to 212.43 million. Distillate supplies dropped 1.1 million barrels, the DoE added.
The market focus was switching to gasoline, or petrol, which was in strong demand ahead of the driving season when Americans take to the roads for vacations starting in May.
Analysts said that oil prices could head south over the next few weeks as concerns over a supply crunch in the United States eased. “There should be some moderate downward correction as global demand drops a bit deeper into the second quarter and the supply cushion continues to build but we should not expect to see any sharp drop,” said Victor Shum, an analyst in Singapore at energy consultancy firm Purvin and Getz.