Crude oil has now ticked above $71 a barrel, a seven-month high, after the Energy Information Administration (EIA) raised its demand outlook for 2009, and a report late Tuesday from the American Petroleum Institute (API)showed oil supplies fell 5.96 million barrels to 357.9 million last week, the lowest level since March. The EIA releases its weekly crude oil inventory report this morning.
Analysis from MF Global Research Analyst Ed Meir on crude oil’s price action Tuesday:
“The weakening dollar had much to do with the (crude oil) advance, but a slightly more upbeat assessment of the energy markets by the EIA also helped, as did a constructive set of API numbers released later in the day. Prices nudged higher still late on Tuesday on news that Nigerian militants blew up a Chevron station in the Delta. (No further details were available at the time of this writing).
With respect to the EIA numbers, the agency raised its forecast for 2009 world demand by 10,000 mbpd from its May estimate to 83.68 mbpd, ending a successive string of downward revisions, and perhaps signaling that the slump in demand may finally have run its course. Nevertheless, the EIA still expects world demand to decline by 1.8 mbpd this year vs. 2008 levels (down 3%), but anticipates a rise to 84.41 mbpd in 2010, 20,000 bpd more than it forecast last month. The agency also raised its 2009 US consumption forecast by 10,000 bpd to 18.86 mbpd.
On the production side, the EIA expects global output to fall short of demand by about 180,000 bpd, less than the 320,000 bpd gap previously forecast. “Higher output in a few countries, such as Brazil, the United States, and Azerbaijan, is expected to offset declining production in Mexico, the North Sea, and Russia,” the EIA said. However, the agency did say that OPEC has to step up to the plate as “prospects for an economic recovery and a rebound in oil consumption signal higher demand for OPEC oil”. Oil production from the cartel in 2009 is expected to fall to 28.49 mbpd from the EIA’s prior estimate of 28.65 mbpd.
From the API, weekly stock data showed a much larger-than-expected crude draw of some 6.0 mb, substantially more than the 400,000 barrel decline forecast. On both distillates and gasoline, stocks were up by 27,000 and 19,000 barrels, respectively, both coming in below estimates. However, the sharp drop in the crude category was the major surprise, as it is now sets the stage for a bullish EIA number out later on Wednesday. Indeed, at this rate, we could very well push past our $72 resistance target on July WTI by days’s end.”
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