Posted: 04 June 2009 0404 hrs
A view of the Tawke oil field and plant that is linked with the Jihan Turkish pipeline in Zakho, 400km north of Baghdad.
NEW YORK: Oil prices plunged on Wednesday from seven-month highs after a surprise jump in American crude reserves that indicated weaker-than-expected demand, and a US dollar rebound.
New York's main futures contract, light sweet crude for delivery in July, sank 2.43 dollars from Tuesday's close to 66.12 dollars per barrel. The contract had surged to 69.05 Tuesday.
London Brent North Sea crude for July delivery tumbled 2.29 dollars to 65.88.
Prices dipped as a result of the dollar's rebound after sinking to new lows and a surge in oil inventories in the United States, the world's largest energy consumer.
The US Department of Energy announced on Wednesday that American crude oil inventories leapt 2.9 million barrels in the week ending May 29 to reach 366 million barrels. Most analysts had expected a 1.7-million-barrel drop.
"Continued demand destruction continues to make for a bearish big picture, underscoring that recent price gains were not underpinned by market fundamentals," said Antoine Halff, deputy head of research for Newedge.
The higher stocks were attributed to rebounding imports.
"The low imports over the last few weeks were - as we said over the last few weeks - not the result of a lack of crude but were rather the result of refiners not buying because their stocks were ample," said Hussein Allidina of Morgan Stanley Research.
"The outlook for oil prices may have just taken a significant turn for the worse," warned Nic Brown of Natixis, analyzing the new US inventory levels.
Brown said that both US and Chinese strategic oil reserve levels were close to, if not completely, full.
This week, oil has punched seven-month peaks on the back of a weakening US currency, which makes dollar-priced oil cheaper for holders of stronger currencies and in turn stimulates demand and pushing up prices.
Meanwhile the market was also affected by reports that some members of the Organisation of the Petroleum Exporting Countries (OPEC) were not adhering to agreed output cuts.
"We did get some reports about OPEC output going up for the first time in several months," MF Global analyst John Kilduff said on Tuesday.
OPEC, which pumps 40 percent of world oil, cut its production target three times late last year to stabilise prices, which tumbled from record highs above 147 dollars in July to 32.40 dollars in December.
The group, which last week decided to keep output unchanged amid signs of economic recovery and higher crude prices, seeks to influence prices by setting an output quota, with members given individual production targets.
The Saudi cabinet said on Monday that it sees 75 to 80 dollars a barrel as a fair price for crude. Saudi Arabia, the world's biggest oil exporter, is the de facto head of the OPEC oil producers' group. - AFP/de
From ChannelNewsAsia.com; see the source article here.
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