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Oil falls below $77 as demand lags economic recovery

Oil falls below $77 as demand lags economic recovery
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First Published: Thu, Feb 04 2010. 03 51 PM IST
Updated: Thu, Feb 04 2010. 03 51 PM IST
London: Oil fell towards $76 a barrel on Thursday as rising crude inventories in the United States signalled a rebound in US economic activity was failing to translate into higher demand.
US crude for March delivery declined 59 cents to $76.39 a barrel at 3:52pm, while London ICE Brent shed 66 cents to $75.26.
A government report Wednesday showed US crude stockpiles rose more than expected as imports gained and refineries kept operating at unusually low rates.
Although manufacturing has shown a strong rebound, US demand for distillate fuel, including diesel, plunged more than 9% in the four weeks to 29 January from a year earlier, according to the Energy Information Administration (EIA), part of the Department of Energy (DOE).
“Yesterday’s DOE data was a disappointment,” said Serene Lim, an ANZ oil analyst based in Singapore.
“We saw an unexpected increase in crude inventories, which could be explained by higher imports and lower refinery utilization, but the underlying concern is that demand is still very weak.”
Total US oil demand over the past four weeks declined 2%, showing no improvement from the corresponding period in the previous week’s report.
News this week that the Institute for Supply Management’s index rose to its highest since August 2004 raised expectations for a strong recovery in US manufacturing.
US nonfarm payrolls are expected to have increased by 8,000 in January, the second monthly gain since the recession started in December 2007, according to the 20 forecasters who have given the most accurate predictions in recent Reuters polls. The data is due on Friday.
Some analysts remain upbeat that industrial demand for oil will soon recover, including Barclays Capital’s Paul Horsnell, head of commodities research.
“The evidence of a recovery in manufacturing, better trucking indications and a slow turning of the manufacturing goods inventory cycle all still point to an improvement in diesel demand that will eventually percolate through to the data,” Horsnell said in an e-mailed note.
An unusually cold winter across the northern hemisphere helped drain some excess oil supplies from floating storage, but the nearing of spring may halt that process.
“Because of the winter season ending soon, we won’t see much of a further decline of inventories in floating storage,” Lim said.
Stocks of crude oil and petroleum products stored on tanker ships around the world likely fell by 27 million barrels last month, reducing a floating supply overhang that has depressed oil and product prices, US bank Goldman Sachs said Wednesday in a note to clients.
Goldman estimates that left a total of 98 million barrels of crude and 80 million barrels of products in floating storage as of end-January.
State-owned Chinese oil firm CNPC expects China’s crude oil imports to increase 9.1% to 212 million tonnes in 2010, or 4.24 million barrels per day, a company report showed on Thursday.
China’s apparent oil demand will grow more than 5% to 427 million tonnes this year, or 8.54 million barrels per day (bpd), the report said.
High winds and rough seas caused pilots to stop moving ships into and out of the key oil port of Houston late on Wednesday, the US Coast Guard said.
Oil has rebounded by more than $4 this week from a six-week low of $72.43 on 29 January. But prices are still far from a 15-month high close to $84 reached on 11 January and well below the record peak close to $150 in July 2008.
Employment data out in the United States on Friday is expected to provide the next indication of the pace of economic recovery.
Non-farm payrolls are expected to have increased by 8,000 in January, the second monthly gain since the recession started in December 2007, according to 20 forecasters polled by Reuters.
Some energy analysts remain upbeat that industrial demand for oil will soon recover, including Barclays Capital’s Paul Horsnell, head of commodities research.
“The evidence of a recovery in manufacturing, better trucking indications and a slow turning of the manufacturing goods inventory cycle all still point to an improvement in diesel demand that will eventually percolate through to the data,” Horsnell said in an e-mailed note.
Royal Dutch Shell Plc posted a 75% fall in fourth-quarter profits to $1.18 billion on Thursday, as the oil major was punished for falling ouput and its focus on the depressed refining and natural gas businesses.
Full year output from Europe’s second largest oil company was down 3%, while low refining margins hit the firm with a $1.76 billion loss at its oil processing arm.
Weak demand has seen the price of oil products like gasoline and diesel struggle to keep pace with relatively high crude prices. Crude has been supported during the global slowdown by expectations booming demand from emerging markets could outstrip supplies in the future.
State-owned Chinese oil firm CNPC expects China’s crude oil imports to increase 9.1 percent to 212 million tonnes in 2010, or 4.24 million barrels per day, a company report showed on Thursday.
China’s apparent oil demand will grow more than 5% to 427 million tonnes this year, or 8.54 million barrels per day (bpd), the report said.
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First Published: Thu, Feb 04 2010. 03 51 PM IST
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