Oil above $78 as OPEC rise fails to calm consumers

Oil above $78 as OPEC rise fails to calm consumers

Singapore, 12 September Oil held near a record high over $78 a barrel on Wednesday after OPEC’s token output increase failed to soothe consumers’ worries about falling inventories.

US light crude for October delivery rose 8 cents to $78.31 a barrel by 0152 GMT, after a record close today of $78.23, and within a whisker of 1 August record high of $78.77.

London Brent crude was up 1 cent at $76.39.

Saudi Arabia persuaded OPEC to raise oil output by 500,000 barrels per day at a meeting today, in a gesture to consumer nations worried by the economic impact of pricey oil and rapidly diminishing fuel stocks.

The move by OPEC, which supplies more than a third of the world’s oil, follows months of calls for more supply from top industrialised consumers worried about a supply crunch in the peak demand winter season.

“With this move, the supplier is signalling ‘we think there may be a supply shortage´, not just the consumers," said Tobin Gorey, a commodities strategist at Australia’s Commonwealth Bank.

“But with the US dollar so low, $78 now is not what $78 was a month ago," he added.

The increase comes on top of current OPEC supplies and takes the output target for the 10 members bound by the agreement -- Iraq and new member Angola stand outside -- to 27.2 million bpd.

OPEC had to balance consumers’ concerns about thinning supplies ahead of the winter season with widespread fears of an economic slowdown that some worry could dampen oil demand.

Global oil demand in the fourth quarter should be 2 million barrels a day higher than last year unless fears of an economic slowdown materialise, the U.S. Energy Information Administration said in its monthly energy forecast.

And U.S. crude oil and gasoline stocks likely fell again last week as refineries stepped up production with an emphasis on distillates, a Reuters survey of industry analysts showed.

The average forecast from 12 analysts was for crude stocks to fall 2.4 million barrels and gasoline levels, already at their lowest since September 2005, to slip by 700,000 barrels.

Adding to supply worries, a leftist rebel group in Mexico claimed responsibility on Tuesday for bomb attacks on oil and gas pipelines in the fifth-largest oil exporter earlier this week.

The group also threatened more assaults against the state-owned oil company, raising fears Mexico could slide into a Nigeria-style struggle to keep oil and gas flowing.

So far, energy shipments from Mexico have not suffered from the attacks. Still, analysts say rising instability in Mexico, a normally reliable supplier, could add as much as $10 a barrel to world oil prices. REUTERS