OIL prices rose yesterday, rebounding from earlier losses as investors focused on a surprise decline in gasoline inventories in the US last week and a potential new supply disruption in Nigeria.
The jump came after the US Energy Department's weekly crude oil and gasoline inventory report painted a mixed picture for the market.
The department's Energy Information Administration said gasoline supplies fell 1.2 million barrels last week, where analysts surveyed by energy research firm Platts were expecting an increase of nearly 1 million barrels.
The EIA also said crude oil supplies fell 1.2 million barrels last week, less than the 2 million barrel decline expected by analysts, and that demand for gasoline is down 1.8 percent, on average, over the last four weeks compared to last year. Inventories of distillates, which include heating oil and diesel fuel, rose 2.6 million barrels, more than expected.
The mixed news caused prices to jump more than a dollar immediately after the EIA report was issued, only to fall by more than US$2 later. In midafternoon trading on the New York Mercantile Exchange, light, sweet crude for July delivery climbed US$2 to US$136.01 a barrel. In London, August Brent crude rose US$1.91 to US$135.63 a barrel on the ICE Futures Exchange.
"It just seems to be a tug of war," said Phil Flynn, analyst at Alaron Trading Corp in Chicago.
Also boosting prices yesterday were events in Nigeria, Africa's largest oil producer and a major US supplier, where white-collar oil industry workers have threatened a strike against a Chevron Corp. unit. Meanwhile, the main militant group blamed for attacks that have significantly cut Nigerian oil production in recent years said it would not take part in a peace summit next month.
Separately, oil exports from Iraq and Kuwait have been disrupted for the past four days due to bad weather, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.
In a separate report yesterday, the American Petroleum Institute, a trade group, said gasoline demand in the US fell 1.4 percent in May, as measured by deliveries, dragging year-to-date demand for gasoline down by 1 percent. That is the first decline in gasoline demand over the first five months of any year since 1991, API said.
Demand for oil over the first five months of the year in the US was off 2.5 percent from last year, API said.
In Washington, President George W. Bush renewed his call to open US coastal waters to oil and gas development to boost production and bring prices down. Florida Gov. Charlie Crist dropped his long-standing support for the federal government's moratorium on offshore drilling.
Bush has argued that Americans are clamoring for relief from surging gasoline costs. But Democrats blasted Bush's proposal as an election year political ploy that would have little impact on short-term gasoline costs since it would take years for any such project to begin production.
While the cost of a gallon (liter) of gasoline in the US is significantly lower than other parts of the West, Americans have been hit hard by prices significantly higher than what they are accustomed to.
The average national price of a gallon of gas slipped 0.3 cent overnight to US$4.075 a gallon in the US (US$1.07 per liter), according to a survey of stations by AAA and the Oil Price Information Service. It was the second straight decline, bringing prices half a cent below their latest record of US$4.08 a gallon, set Monday.
With demand for gasoline falling steadily since January, retailers in the US have had a hard time hiking gas prices fast enough to keep up with rising crude prices. While oil prices have risen 94 percent over the past year, and set a new record of US$139.89 a barrel early this week, gas prices are up only 36 percent. That discrepancy has put pressure on the profit margins of companies all along the gasoline supply chain, including refiners, distributors and retailers.
Midwest flooding may create a new wrinkle in the gas price equation; corn and ethanol prices are rising as a result of crop damage and transportation bottlenecks. Rising prices for ethanol, which is used as a gasoline additive, could push gas prices still higher, or limit their declines.
"If you're going to be using less ethanol, you're going to be using more oil," Flynn said.
Beyond the EIA report, the oil market continued to mull the impact of a Saudi Arabian pledge to step up oil production as well as overseas supply disruptions.
"There is still no word from the Saudis as to how much oil they are going to release," said Edward Meir, an analyst at an analyst at MF Global UK Ltd, in a research note.
July natural gas futures rose 26.4 cents to US$13.216 per 1,000 cubic feet. Natural gas prices last settled over US$13 in December 2005, as they were receding from a spike above US$15 in the wake of hurricanes Katrina and Rita.