Another week of growth for the U.S. crude supply sent futures prices tumbling as traders finally appeared satisfied the nation would not experience shortages of gasoline this summer.
Sellers who wisely had been stocking up on crude futures in recent months unloaded at least some of their high-priced length on the New York Mercantile Exchange after weekly U.S. inventory reports confirmed oil was not nearly as scarce as it had been earlier.
"Petroleum markets have begun to focus on high and still rising U.S. crude oil stocks, which along with comfortable levels in Europe, provide evidence of high production by OPEC members," the U.S. Energy Information Administration noted Wednesday in its weekly summary of the U.S. oil market. "If OPEC producers continue to expand production in line with their stated intent, U.S. crude oil imports could remain high enough to minimize summer crude draws as refineries ... maximize gasoline production."
The EIA's conclusions were bolstered by its weekly inventory report, which is closely watched by oil traders. This week, the EIA statistics showed supplies of crude and its end product, gasoline, keeping up with gasoline demand, which is projected at 9.1 million barrels per day, about 1.4 percent above last spring.
The EIA pegged the U.S. crude supply as of last week at 320.7 million barrels, a healthy 3.8 million barrels above the previous week and "just below the upper end of the average range for this time of year."
In the past nine weeks, the EIA reported, the U.S. crude supply has grown 26.4 million barrels while the amount of crude processed by the nation's refineries was running about 15.2 million barrels per day.
Gasoline volumes remained above average after posting an 800,000-barrel build to 231 million barrels last week, which should at least keep a lid on rising retail prices that Monday hit a nationwide average of $2.28 per gallon -- more than 6 cents higher than the previous week and 49 cents over last spring.
Increased public grumbling about gasoline prices kept alive the possibility that motorists still could start cutting back on their driving in earnest, so Wednesday appeared to be a good time for speculators to sell off some of their length and presumably bank a nice pre-summer profit.
The result was a sharp decline on the New York Mercantile Exchange. Crude continued to melt like a leftover snow bank after reaching a record intraday high $58.28 per barrel just nine days ago. The May crude contract slid $1.64 to $50.22 per barrel while May gasoline fell more than 5 cents to $1.48 per gallon.
With the actual supply of fuel becoming less of an immediate issue, much of the market's fortunes in the coming weeks probably will be dependent on forecasts for world demand for not only gasoline but diesel and jet fuel as well.
High demand for oil in China has been cited for the past several months as a major driver of world oil prices, and the market bulls continue to insist Asia will soak up huge volumes of crude and refined fuels at any price to keep its growing economy humming.
There were, however, troubling indications all might not be well in China.
The International Energy Agency Tuesday said it had cut its projections for growth of Chinese oil demand from 1.77 million bpd last month to 84.3 million bpd in April, a reduction of some 40,000 bpd.
"Chinese demand growth slowed to 5.4 percent in the first two months of 2005, well below the 20.8 percent growth seen a year ago," the IEA report stated. "World 2005 demand is revised slightly downwards by 50,000 bpd."
It will likely take a major pratfall by the Chinese economy to significantly cut into 2005 oil demand, and the IEA's determinations by no means point to such a slow-down. They are, however, a development worth noting in the oil market.
Should China back off from its oil purchases, OPEC would no doubt have to react in the form of reigning in its exports to prevent a major collapse. At the same time, falling world oil prices might result in higher gasoline consumption in the United States.
There were some opinions Wednesday that OPEC was not inclined to increase production simply because it consistently has maintained the market has enough crude.
"Libya and Algeria contend world inventories are rising and it's only the United States refining (capacity) issues that are leading prices higher," said Phil Flynn, energy analyst at Alaron Trading. "So it appears we do have disgruntled members that are starting to balk about increases."
Given the dizzying heights crude and gasoline prices have reached just in recent days, it might appear difficult to believe crude supplies are anything but extremely tight. With NYMEX off by around $8 in such a short period, however, it appears the market is coming to that very conclusion.
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