Analysts expect 1.6 million-barrel increase in weekly crude supplies
SAN FRANCISCO (MarketWatch) — Crude-oil futures fell Wednesday morning, pulling back from gains in the previous session as traders awaited the release of a U.S. government report that’s expected to show a rise in crude supplies.
Crude for June delivery CLM11 -2.14% fell $2.10, or 2%, to $101.78 a barrel on the New York Mercantile Exchange.
“Markets are still very choppy for our liking and it is perhaps best to watch things from the sidelines for the time being,” Edward Meir, senior commodity analyst at MF Global said in a note to clients.
“The U.S. flooding issue ... has the potential to throw the [energy] market another curve ball and drive prices higher just when the global economy can least afford it,” he said. “On the other hand, if the floodwaters recede, we could see a violent downside correction setting in, particularly in gasoline.”
On Tuesday, crude futures climbed 1.3% and gasoline futures tacked on 3.1% on growing concerns that flooding along the Mississippi River will hurt refinery operations. Read more on Mississippi floods.
“Flooding in the Mississippi delta continues to affect refining operations as high water levels move towards the Louisiana refining corridor, while upstream floodwaters are believed to have peaked,” analysts at J.P. Morgan said in a research note.
On Wednesday, June gasoline RBM11 -3.76% traded at $3.25 a gallon, down 12.96 cents and June heating oil f HOM11 -0.96% fell 2.99 cents at $2.97 a gallon. June natural gas NGM11 -1.06% lost 4 cents to $4.20 per million British thermal units.
Demand prospects
In a report Wednesday, the Organization of the Petroleum Exporting Countries on Wednesday increased its forecast for 2011 demand growth by 20,000 barrels a day to 1.41 million barrels a day, but the upgrade offered little support to oil prices.
OPEC said the continuing negative effects of the Japanese earthquake and uncertainty about the strength of the U.S. economic recovery threaten demand, but, “China’s economy is roaring ahead of all expectations,” so risks are broadly balanced. Read more about OPEC’s monthly report.
Chinese economic data released Wednesday showed consumer inflation moderated slightly in April, though remaining at elevated levels that could pressure policymakers to make additional rate hikes. Read more about the Chinese economic data.
“It is always wise to be prudent on drawing myriad conclusions from one month’s data, but together these figures appear to show that there is some moderation in economic activity,” analysts at J.P. Morgan said. “Ultimately, a gradual slowdown is much better news for China than overheating, which would require more drastic action to control.”
In a sign of slacker-than-expected demand, the U.S. Energy Department’s Energy Information Administration Tuesday cut its 2011 forecast for world oil demand by 100,000 barrels a day. The EIA’s updated short-term outlook now projects total world oil consumption will grow by 1.4 million barrels a day this year.
“Among the major uncertainties that could push oil prices above or below our current forecast are: continued unrest in producing countries and its potential impact on supply; decisions by key OPEC-member countries regarding their production in response to the global increase in oil demand; the rate of economic growth, both domestically and globally; fiscal issues ... and China’s efforts to address concerns regarding its growth and inflation rates,” the EIA said.
Data wait
Traders Wednesday also await supply data from the EIA covering last week, which will be released shortly.
Late Tuesday, the American Petroleum Institute reported that crude-oil inventories rose 2.9 million barrels on the week ended May 6. The API also showed gasoline stockpiles declining 1.8 million barrels, and stocks of distillates rising 582,000 barrels.
Analysts polled by Platts expect the EIA to show an increase of 1.6 million barrels in crude stockpiles, a decline of 300,000 barrels for gasoline inventories, and an increase of 300,000 barrels for distillates inventories.
