Singapore: Oil prices were steady Thursday after jumping more than $3 a barrel in the previous session after the US government reported a larger than expected decline in gasoline stockpiles.
Traders brushed aside a large increase in crude oil inventories reported by the US Energy Department Wednesday, focusing instead on the third straight week that gasoline inventories fell.
Light, sweet crude for May delivery fell 18 cents to $104.65 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract on Wednesday jumped $3.85 to settle at $104.83 a barrel.
The department’s Energy Information Administration said gasoline supplies fell 4.5 million barrels last week, twice the decline forecast by analysts surveyed by Dow Jones Newswires.
Falling gasoline inventories suggest supplies are tightening as the peak summer driving season approaches. That could boost prices of the motor fuel further, and keep oil prices elevated. But some suggested oil’s gains in the previous session were overdone.
“In my view, the reaction to the gasoline inventory draw was a knee-jerk overreaction,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
“Refiners are reacting to the soft demand and therefore they are not processing as much crude, so it should not have been a surprise to see the crude inventory build and the gasoline draw because refiners were making less,” Shum said.
The EIA reported that demand for gasoline over the four weeks ended 28 March was 0.5% lower than a year earlier, averaging nearly 9.2 million barrels a day _ although it rose by nearly 1% last week when compared to the same week last year.
“Demand so far this year for gasoline has been lower versus the same time period last year and that’s a result of the US economic downturn and possibly some demand destruction due to the high oil prices,” Shum said.
He added that he did not expect oil prices to pull back too much, saying there is support for oil at around the $100 level.
“Even though demand in the US has been softening, demand elsewhere is strong,” Shum said. “China is increasing imports of gasoline, in part as stock building ahead of the Olympics.”
EIA data showed crude oil inventories grew 7.4 million barrels last week, more than three times the increase analysts had expected.
Although theoretically rising oil supplies could undermine crude prices, futures have been driven higher recently by weakness in the dollar and speculative buying by investors who believe rising demand overseas will keep sending crude skyward.
The dollar supported oil prices Wednesday by falling after Federal Reserve chairman Ben Bernanke told Congress the economy may be headed for a recession. Many investors see commodities such as oil as a hedge against inflation and a falling dollar.
In other Nymex trading, heating oil futures fell 0.5 cent to $2.946 a gallon (3.8 liters) while gasoline prices fell 1.05 cents to $2.7631 a gallon. Natural gas futures added 2.1 cents to $9.853 per 1,000 cubic feet.
In London, Brent crude futures fell 23 cents to $103.52 a barrel on the ICE Futures exchange.