Oil Settles at Another 20-Month Low After Inventory Rise
Oil prices briefly fell below $50 per barrel for the first time since May 25, 2005, after the government reported larger-than-expected jumps in crude oil and gasoline inventories.
Light, sweet crude for February delivery fell to $49.90 in afternoon trading on the New York Mercantile Exchange. It spent only a few moments below the $50 threshold before climbing back to settle at $50.48, down $1.76 from Wednesday's close. For the month, oil is down 17%.
"There's no doubt that this is significant," said Phil Flynn of Alaron Trading. "If you're a bull, the only thing you can hold your hat on is they didn't close below $50."
If that happens, Flynn said the next important psychological barrier could be $45 per-barrel oil prices.
U.S. crude oil stocks rose by 6.8 million barrels to 321.5 million, according to a report by the Energy Information Administration. Analysts had been expecting an increase of just 325,000 barrels, according to a Dow Jones Newswires survey. The EIA said inventories are above the upper end of the average range for this time of year.
Gasoline inventories, meanwhile, rose by 3.5 million barrels to 216.8 million, above analysts' expectations of a 2.6 million barrel rise. Distillate fuel inventories, which include heating oil, rose by 900,000 barrels to 141.9 million barrels, compared with analysts' expectations of a 1.3 million barrel rise.
Earlier in the day, prices were buffeted by the effect of a cold snap in the U.S. Northeast and forecasts of bearish demand growth from the International Energy Agency.
In lowering expectations for this year as well revising last year's figures downward, the Paris-based IEA cited mild winter weather that has crimped energy demand and weaker expectations for U.S. economic growth.
In its closely watched monthly oil market report, the energy watchdog forecast global oil demand growth this year of 85.77 million barrels a day, down 160,000 barrels a day. And it said oil demand growth last year was 120,000 barrels a day lower.
Oil powerhouse Saudi Arabia remains undeterred by crude's recent drop.
Saudi oil minister Ali Naimi, who earlier this week said he opposed calls from other OPEC members for new cuts in production, announced Thursday his country planned to increase its crude oil production capacity nearly 40 percent by 2009 and double its refining size over the next five years to keep pace with growing global demand.
Naimi blamed the sharp rise in global crude prices over the past two years mostly on "insufficient investment and rising energy demand," especially from the booming economies of Asia.
"The rise has been a wake-up call for the industry and for producers and consumers alike, who are now beginning to address deliverability problem head on," he said at an international energy conference in New Delhi.
But Yemen's oil minister, Khalid Mahfoudh Bahah, who was also attending the conference in New Delhi, said he expects oil price to average between $55 a barrel and $60 a barrel in the coming months.
Vienna's PVM Oil Associates said Naimi's opposition to further cuts for now may be a call to other OPEC members "for better compliance with the already agreed output reductions, the second of which has yet to come into effect."
OPEC has committed to a total cut in output of 1.7 million barrels per day, including a 500,000 barrel-a-day reduction set to begin Feb. 1. A survey by Dow Jones estimates OPEC has cut output by little more than half of its pledged levels. Production remains near 27 million barrels a day or about 700,000 barrels a day above OPEC's target.