Oil Prices Rise on Supply Concerns

U.S. oil prices rose to $40.97 a barrel Wednesday, their highest level in six weeks, after data showing an unexpected decline in crude stocks helped rekindle concerns about security and supply in the key Mideast oil regions.

A weekly U.S. government report showed a fall in crude and gasoline stockpiles but a rise in heating oil inventory. Analysts surveyed by Reuters had predicted a rise in stockpiles of all three categories.

“I think the market responded to the unexpected decline in crude [stocks], even though it’s not a material decline,” said Tim Evans, senior energy analyst at IFR Energy Services.

“It increased sensitivity to other bullish factors, fear of terror, demand growing strongly and [the fact that] OPEC might not have much spare capacity left.”

Wednesday’s closing price in New York trading was up $1.53 a barrel from Tuesday and was the highest since the price hit a record $42.33 on June 1.

Traders said that, after a mostly neutral initial reaction to the inventory data, buyers emerged in force in late trading as key resistance levels were broken in both the crude and gasoline contracts.

The U.S. Energy Information Administration said crude oil stocks fell by 2.1 million barrels to 302.9 million in the week ended Friday. Gasoline stocks were off 200,000 barrels at 205.9 million, but heating oil stocks rose by 1.4 million to 44.5 million.

“The crude and gasoline draw were a little bigger than I expected. Still, against seasonal tendencies, the report shows pretty solid supply for the complex as a whole,” said Kyle Cooper, an analyst with Citigroup Global Markets.

“Unless you do have some type of supply disruption, we’re going to be quite fine for gasoline, and this distillate build helps alleviate some concerns for the winter’s supply,” he added.

Crude stocks in the world’s biggest consumer nation have grown steadily in recent months, but strong demand has prevented equivalent gains in refined product stocks, helping to underpin oil’s price strength.

Strong global oil demand has left little room to cope with supply hitches, and the market has been sensitive to any hints of supply disruptions from big oil producers such as Iraq, Nigeria, Norway and Russia.

OPEC producers are expected to raise a formal production target by 500,000 barrels a day at a meeting next week, but the increase will have little effect on actual supplies as the cartel is already pumping well above official limits.