Crude has fallen to its lowest level in two months on the back of brimming US fuel stockpiles. Following the US government's release yesterday of its latest weekly figures on oil inventories held by the world's biggest energy consumer, New York crude futures tumbled 5 per cent, dipping to as low as $70.44.
Crude later rebounded above $71 after the regular trading session opened on the New York Mercantile Exchange (NYMEX) as investors sought bargains. Crude's earlier slide followed a similar decline in the (NYMEX) January futures contract for heating oil. Though a massive winter storm swept across the central US, killing at least 17 people and stranding motorists, the furnace fuel dropped to a two-month low of $1.9093 per gallon.
Hope was fading for any recovery in heating oil futures this winter, said Carl Larry, the president of the Houston consultancy Oil Outlooks and Opinions. "About the only thing that everyone holding length can hope for is hell freezing over," he said. The US energy department said inventories of diesel and heating oil, a group of oil products collectively known as distillates, rose by an unexpected 1.6 million barrels in the week ended December 4 and were 22 per cent higher than in the same period a year earlier. Petrol stockpiles grew by 2.2 million barrels, which was also above most analyst predictions.
"One thing is for sure: the market's attention is back to fundamentals," said Andrey Kryuchenkov, the vice president of commodities research at VTB Capital in London. "Elevated distillate inventories remain a major concern with seasonal demand still very weak." The recession has cut deeply into US demand for transportation fuel, especially diesel, which powers lorries and trains. The weak US demand for oil products, however, was just one of several factors that drove crude lower in the past six trading sessions, analysts said.
"It has been a difficult week thus far for oil, given the strengthening of the US dollar and little fundamental support," said David Hart at Westhouse Securities in London. Further pressure on crude prices may be coming from China, the country in which oil demand has been growing the fastest, offsetting falling fuel consumption in the developed world. Fuel stocks held by China's two biggest oil firms, China National Petroleum Corp and Sinopec, increased last month after falling in each of the previous three months, Reuters reported yesterday, citing an industry official.
The Chinese government stopped publishing data on national oil inventories as of last month. However, Beijing lifted petrol and diesel prices by roughly 7 per cent last month, which may have curbed Chinese demand for transportation fuel. In another blow to market fundamentals, refiners in Japan, South Korea and China have said that Saudi Arabia will supply them with full volumes of crude under term contracts. That follows months of pared deliveries as the OPEC kingpin idled about a third of its oil production capacity in an effort to stabilise the glutted global market.
Investors have shown less appetite for risk in recent days as new signs suggest that a global economic recovery could be delayed and as concerns have intensified over the creditworthiness of several countries including Spain and Greece, as well as Dubai. In general, the risk aversion has favoured capital flows out of commodities and into the US dollar, analysts said. @Email:firstname.lastname@example.org