Economic growth drives oil futures rise

$41.84 a barrel represents an eight-week high

July 28, 2004|By BLOOMBERG NEWS

NEW YORK - Crude oil futures rose to an eight-week high yesterday as expanding economies bolster demand for petroleum products.

Oil has jumped 28 percent this year as OPEC output has risen close to capacity to meet increasing consumption in the United States and China. The U.S. economy grew at a 3.7 percent annual pace in the second quarter. The German economy may grow at the fastest pace in five years next year, a government adviser said.

"The continuation of broad-based economic growth across countries has increased energy demand and pulled oil prices higher," said Jason Schenker, an economist at Wachovia Securities LLC in Charlotte, N.C.

Crude oil for September delivery was up 40 cents, or 1 percent, at $41.84 a barrel on the New York Mercantile Exchange, the highest settlement price for a contract closest to expiration since a record $42.33 on June 1. Futures began trading on the exchange in 1983. Prices were 39 percent higher than a year earlier.

Technical analysts, who chart prices and volumes to discern trends, are focused on whether prices will breach the record. Brokers have orders to purchase futures if prices can pass $42.45, the intra-day high reached June 2, analysts said.

"We'll test the $42.45 level again," said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. "If we can break through, buy-stops will be triggered and we'll be looking at resistance at $43.25."

A Fibonacci graph of the move in oil futures from a low last September to June's record points to $43.25 as the next hurdle for technical traders, Kilduff said. Fibonacci analysis, named for the 13th-century mathematician, helps traders determine whether gains or losses will continue.

In London yesterday, the September Brent crude oil futures contract rose 43 cents, or 1.1 percent, to settle at $38.54 a barrel on the International Petroleum Exchange. It was also the highest settlement price since June 1.

Consumption will rise by a record 2.49 million barrels a day this year, the International Energy Agency said this month. Use will jump by 1.82 million barrels to 83.2 million barrels a day next year, the Paris-based adviser to 26 industrialized countries said.

The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, agreed last week to proceed with a plan to raise the group's output ceiling by 500,000 barrels a day to 26 million barrels a day starting Aug. 1.

OPEC may increase oil output to more than 30 million barrels a day next month as members pump more than their official limits, PetroLogistics Ltd., which assesses supply by tracking tanker shipments, said last week. Output last reached that level in 1980, according to U.S. Energy Department figures.

"There is almost no excess capacity," said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis. "Limited availability is pushing prices higher."

OPEC has the ability to pump about 31.6 million barrels of crude oil a day, according to Bloomberg figures. The group's capacity drops to 29.1 million barrels a day if Iraq is excluded. Iraqi shipments are often disrupted because of attacks by insurgents.

A spate of weekend attacks during April and May in Saudi Arabia and Iraq fueled rallies that pushed oil and gasoline prices to records. Saudi Arabia and Iran have the world's largest oil reserves, according to data from BP PLC.

U.S. crude-oil supplies probably fell 500,000 barrels in the week that ended Friday, analysts said. That would be the third straight decline in stockpiles. The Energy Department is scheduled to publish its report today.

Gasoline for August delivery fell 0.24 cent to settle at $1.2443 a gallon in New York yesterday, the second straight decline. Prices reached $1.47 on May 20, the highest since the contract began trading in 1984.

Oil companies are benefiting from the record prices. BP PLC, Europe's largest oil company, said its second-quarter profit increased 35 percent, boosted by record oil and gasoline prices and a jump in Russian production. The result is the second-highest in the company's history.

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