U.S. oil prices fell below $41 on Wednesday on profit-taking sales, even as shrinking American gasoline inventories reinforced fears of a supply crunch in the world’s biggest oil consuming nation.
Weekly U.S. stock data, showing no rise in U.S. commercial crude inventories and tighter gasoline, failed to spark the rally which some traders had predicted after Tuesday’s correction.
“On other days, an (Energy Information Administration) report like this one ... with crude stocks unchanged and product inventories down, would have sparked a positive riot of buying,” said Tim Evans, senior analyst at IFR Energy Services, in a research note.
“Maybe the market is only trying to lure us into a false sense of security, but today’s lackluster price reaction to what could have certainly been taken for bullish data suggests that the longer-term uptrend is just about played out,” Evans said.
Oil prices are up 27 percent this year, fuelled by world economic growth, supply security fears and U.S. refinery bottlenecks.
U.S. light crude futures ended 44 cents down at $40.70 a barrel, about a dollar lower than last week’s 21-year peak of $41.85. London Brent closed 36 cents lower at $37.08.
Earlier this week, leading OPEC producer Saudi Arabia promised to raise output sharply in June and pump at full capacity if necessary.
“Market concerns have moved beyond concerns about crude oil capacity alone and are now a function of a combination of upstream, logistical, downstream and geopolitical factors,” said analyst Paul Horsnell of Barclays Capital.
Fears are that investment funds, long in oil for many months, will wait to see firm evidence of inventory builds in key consumer economies before relaxing their bet on continued oil strength.
Some blame speculators.
“What we have here is a speculative bubble ... There is no real shortage on the markets. That is the reality,” European Energy Commissioner Loyola de Palacio told a news conference in Brussels.
Weekly U.S. government data released by the EIA showed no impact on motor fuel demand from record high retail prices.
U.S. gasoline demand in the year to date is up 2.9 percent at 8.925 million barrels a day, leaving a five-million-barrel, 2.5 percent, inventory deficit versus last year, the EIA said.
This year’s weak dollar has contributed to the attraction of oil for investors. A renewed decline to $1.21 on Wednesday versus the euro was the dollar’s lowest in three weeks. The dollar hit a low against the euro in February of just over $1.28.
Saudi Arabia, the world’s top exporter, pledged at the weekend to raise June production by 10 percent to 9.1 million barrels per day (bpd).
The unilateral move appeared to upset some cartel members who were unwilling immediately to endorse a Saudi plan to legitimise group production above formal output limits by lifting group quotas by 2.0-2.5 million bpd.