Crude Hits 6-Month High as OPEC Sees Demand Recovery
May 27, 2009

Crude oil futures settled at a six-month high Wednesday, as OPEC members talked of a coming rebound in demand.

Light, sweet crude for July delivery settled $1, or 1.6%, higher, at $63.45 a barrel on the New York Mercantile Exchange. July Brent crude on the ICE futures exchange settled $1.26, or 2.1%, higher, at $62.50.

Oil took a rare detour from tracking U.S. equities, which have this year served as the metric of choice for commodities investors looking for signs of an end to the global economic downturn. While stocks fell on the growing likelihood of a General Motors Corp. (GM) bankruptcy, crude futures were supported by projections of resurgent oil demand from the Organization of Petroleum Exporting Countries.

Saudi Arabia's oil minister, Ali Naimi, told reporters customers are asking for greater volumes of oil, adding that he sees "the recovery coming." Saudi Arabia is the world's biggest oil exporter, and normally the principal architect behind OPEC policy.

Others were more cautious, with OPEC Secretary General Abdalla Salem El-Badri saying that supplies are still robust and demand weak. He did predict that prices could hit $70 a barrel by the end of the year as an economic recovery begins.

OPEC meets Thursday, but is not expected to alter production levels. The group agreed to cut production by 4.2 million barrels a day last year. Compliance is thought to be around 80%, but that has the potential to drop fast as rising prices tempt some countries to exceed their quotas.

"They're not going to cut back, and you're going to find that they're cheating more," said Mark Waggoner, president of Excel Futures in Newport Beach, Calif.

Oil inventories have only just begun to crest, after hitting an 18-year high in the U.S. about a month ago. Americans typically consume more gasoline during the summer, which could help to reduce stockpiles even if OPEC compliance falls.

The latest inventory data is due out Thursday from the U.S. Energy Information Administration. Analysts expect oil inventories to fall by 500,000 barrels, according to a Dow Jones Newswires survey. Gasoline stocks are seen dropping 1.7 million barrels, while distillate inventories, including heating oil and diesel, are forecast to rise by 1.1 million barrels.

Although gasoline inventories have fallen below the five-year average for late May, refinery utilization is expected to rise slightly, to just 82.1% of capacity, the lowest rate seen at this time of year since at least 1991.

"You're look at a relatively tight gasoline situation, which is probably just transitory," as U.S. refiners could ramp up production or import fuel from Europe, said Andy Lebow, senior vice president at brokerage MF Global in New York.

Front-month June reformulated gasoline blendstock, or RBOB, settled 3.93 cents, or 2.1%, higher, at $1.8917 a gallon. June heating oil settled 1.64 cents, or 1.1%, higher at $1.5617 a gallon.

Source: Dow Jones Newswires

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