LONDON, 26 May 2004 — Oil fell sharply yesterday as record gasoline prices eased but traders maintained that Saudi Arabia’s promised output boost would be insufficient to meet spiraling global demand or replenish thin US gasoline supplies.
After Monday’s $1.79 surge to a new historical closing high on US crude oil, some traders took profits and prices slipped 77 cents to $40.95 a barrel yesterday. They are still only about $1 away from a record 21-year high reached last week.
European benchmark Brent traded 86 cents lower at $37.31 a barrel, having surged more than $1.60 on Monday. Oil is still higher than Friday’s weak close.
Minister of Petroleum and Mineral Resources Ali Al-Naimi also said the Kingdom could lift output to 10.5 million bpd within one week if demand warranted.
The world’s biggest oil consuming nations have intensified their calls for OPEC to lift output in order to aid economic growth with lower prices, but producers say there’s little else they can do.
“OPEC may for once be right that this price hike is not being driven by the organization but rather by a combination of externalities out of their control such as geopolitical uncertainty, US refinery bottlenecks, and the China phenomenon,” said Standard Bank analyst William Buchanan.
With global crude oil production now stretched to near capacity after an unexpectedly strong second quarter, the slightest hiccup in the supply chain can spook the market, traders say.
This week prices have been supported by a blaze at an export pipeline near Iraq’s main northern Kirkuk oilfield, the closure of a pipeline in the US Northwest after a fire and the outage of a 150,000-bpd Gulf of Mexico oil platform due to a safety valve problem.
Yesterday, Shell said its Mars Gulf oil platform would remain out of commission for another two to three weeks, although the 285,000 bpd Olympic oil products pipeline could be back to normal capacity overnight.
Iraqi supplies have been stymied by continued sabotage, forcing Baghdad to lower its export target to around 1.8 million bpd for the next few months. The bulk of that is from the southern oil terminal at Basra, which was the target of attacks last month.
Gasoline prices in the United States fell sharply by nearly six cents or four percent to $1.40 a gallon yesterday, seven cents below a record high on Monday. But they are still nearly 25 percent higher than last year’s peak.
OPEC and analysts have pinned much of this year’s explosive price rise on a shortage of US refining capacity, which has left gasoline inventories two percent below last year but given crude stocks a four percent cushion versus 2003, according to the US government’s last weekly report.
