Oil prices breach US$65

Posted: 29 May 2009 0557 hrs

Oil pumps near Baku, Azerbaijan

NEW YORK - Oil prices climbed past 65 dollars per barrel Thursday, scaling new six-month highs after the United States reported a sharper-than-expected drop in crude inventories.

Prices also rallied as the US currency dropped against the euro -- making dollar-priced oil cheaper for holders of other currencies -- and after the OPEC oil cartel said it was maintaining output at current levels.

New York's main futures contract, light sweet crude for delivery in July, jumped as high as 65.35 dollars per barrel.

It closed 1.63 dollars higher from its closing price on Wednesday to 65.08 dollars, the highest close since November 4.

London's Brent North Sea crude for July was up 1.89 dollars at 64.39 dollars, also the highest level since early November.

The market has been pushing higher in recent days amid expectations that the economic contraction in the United States, the world's largest energy consumer, is easing.

"In the most general terms, the oil market still seems to be optimistically embracing the idea that the worst of the recession has passed," said Mike Fitzpatrick of MF Global.

"Big oil has been good for the US economy. Big oil does well when the economy is doing well and the increase that we have seen in oil prices is a sign that the economy is recovering," said Phil Flynn of Alaron Trading.

A sharp drop in crude inventories, indicated by latest statistics, appeared to be supportive of prices.

The US Department of Energy on Thursday reported that American crude stockpiles tumbled by 5.4 million barrels last week, while analysts had expected a drop of only 500,000.

"The US crude oil balance continues to tighten as imports remain weak," said Hussein Allidina of Morgan Stanley Research.

The DoE added that gasoline (petrol) stockpiles fell 600,000 barrels, far less than the 1.7 million forecast by analysts. Gasoline inventories are being closely watched amid the start of the summer vacation period in the United States that sees Americans traditionally hit the roads in vast numbers.

Earlier Thursday, the OPEC crude exporters' group decided to maintain current output levels as expected. The Organization of Petroleum Exporting Countries left its production target at 24.84 million barrels a day following a meeting in Vienna.

Oil prices had already surged Wednesday on the back of buoyant equities and OPEC comments that strengthened expectations of economic recovery and higher energy demand, traders said.

OPEC believes the market is oversupplied but it seems satisfied with oil prices after a rally in the last two weeks that has taken crude above 60 dollars a barrel.

The group that pumps 40 percent of world oil had cut its production target three times late last year to help stabilise prices that tumbled from record highs above 147 dollars a barrel in July 2008 to 32.40 dollars in December.

Prices remain below the 75 dollars a barrel that OPEC members desire. - AFP /ls

From ChannelNewsAsia.com; see the source article here.

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