LONDON - Oil prices fell on Tuesday on expectations that US crude stockpiles would rise to a six-year high and as Opec's president said he would propose a group output increase at its meeting next week.
Concern of a shortfall in winter distillate fuel supplies and strong natural gas prices
stemmed crude's price slide.
US light sweet crude settled down 73 cents to US$53.76 a barrel, after a bout of profit-taking saw the contract retreat over a dollar from a six-week peak of US$55.55 on Monday.
A Reuters survey forecast US crude stocks would be up by 200,000 barrels in US inventory data due out on Wednesday. That would put stocks at their highest levels since mid-July 1999.
Despite hefty inventories, Opec's President Sheikh Ahmad al-Fahd al-Sabah said on Tuesday he expected the group to raise its official ceiling to try to bring down prices when it meets in Vienna on June 15.
"If the price will continue as it is now I will propose as president to increase by 500,000 (barrels per day) for the ceiling," Sheikh Ahmad al-Fahd al-Sabah said.
That would put the Organisation of the Petroleum Exporting Countries (Opec) target production level for the 10 countries bound by quotas at 28 million barrels per day.
Sheikh Ahmad said the rise would mostly be for psychological reasons as the Opec-10 is already producing close to that level. In May, the Opec-10 pumped an estimated 27.94 million bpd, according to a Reuters survey.
Regardless of how much crude oil Opec can produce, the market is most concerned with supplies of refined products, especially of distillates, including heating oil and diesel, which have been experiencing unseasonably strong demand.
Demand has climbed briskly across the world, fueled by European motorists, US truckers and Chinese businesses that turn to diesel-powered generators during summer blackouts.
Analysts are concerned stocks will be severely stretched by the time of the traditional demand peak for these fuels in the fourth quarter of the year. Many fund managers are therefore betting that dips in short prices will be short-lived.
"Crude oil is resting on a very solid uptrend," said Mark Keenan of MPC Commodity Fund.
Wednesday's US inventory data is expected to show US commercial distillate stocks have risen by 1.0 million barrels. But even with the expected rise, stocks would still be in the lower half of the average range for this time of the year.
High natural gas prices due to hot weather in key US and Canadian markets also supported crude. The weather boosts demand for gas-fired air conditioning.
"If you look at natural gas, that is the next indicator of temperature ... That's going through the roof," said Keenan.
- REUTERS
LONDON - Oil prices fell on Tuesday on expectations that US crude stockpiles would rise to a six-year high and as Opec's president said he would propose a group output increase at its meeting next week.
Concern of a shortfall in winter distillate fuel supplies and strong natural gas prices
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