Oil prices rebound to near US$123 a barrel on news of Kuwait petrochemical explosion

The Associated Press , Bangkok | Thu, 06/05/2008 5:44 PM | Business

Oil prices rebounded to near US$123 a barrel Thursday in Asia on reports of an explosion at a Kuwaiti petrochemical plant.

Both light, sweet crude on the New York Mercantile Exchange and ICE Brent crude briefly rose above US$123 a barrel following initial reports of the blast at the Mina Abdalla industrial area. But the futures contracts retreated when it emerged that the explosion had not affected Kuwait National Petroleum Corp.'s refinery there, according to Dow Jones Newswires.

Overnight, Nymex crude for July delivery lost US$2 on worries about declining demand in the U.S. and abroad.

In its weekly inventory report, the U.S. Energy Department's Information Administration said U.S. demand for gasoline dipped 1.4 percent over the last four weeks. Meanwhile, gasoline inventories rose by 2.9 million barrels last week, more than three times the increase analysts polled by energy research firm Platts had expected.

Concerns about demand have helped pull oil down nearly 10 percent from its May 22 high of US$135.09. Those concerns were exacerbated Wednesday by the EIA report and by moves by India and Malaysia to cut fuel subsidies, effectively raising their retail prices for everything from gasoline to cooking gas. Many investors believe subsidy cuts will choke off demand for fuel in
the developing world.

"There's definitively smaller demand, (and) you have subsidies that are going to fall in energy consuming nations," said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com. "The psychology is just changing."

India announced increases that, for example, would boost gasoline prices in New Delhi by 11 percent. Malaysia said it would hike gasoline prices by 41 percent and electricity for commercial and industrial users by 26 percent.

Indonesia and Taiwan, among other, have taken similar steps in recent weeks.

Late afternoon in Singapore, light, sweet crude for July delivery was up 62 cents at US$122.92 barrel in electronic trade on the Nymex. The contract rose as high as US$123.25 earlier during Asian trade; it fell US$2.01 in Wednesday's floor session to US$122.30 a barrel.

That was oil's lowest settlement since May 6.

The EIA also said inventories of distillates, which include diesel and heating oil, rose by 2.3 million barrels. Investors shrugged off an unexpected decrease in crude oil inventories.

Many analysts have long questioned whether high oil prices could be sustained; many blame speculative investing fueled by the falling dollar for a near doubling of crude prices over the past year.

A weakening dollar can spur investors to buy oil and other commodities as a hedge against inflation, but the effect tends to reverse when the dollar strengthens. A stronger dollar also makes oil more expensive to buyers dealing in other currencies.

Recently, with some fluctuations, the dollar has been gaining against the euro and yen as U.S. economic data supports the view that the Federal Reserve isn't likely to cut its key interest rate further. In Asian currency trade later afternoon in Tokyo, the dollar was around 106 against the yen, while the euro was changing hands near US$1.54.

Among other main factors cited for sustained high prices over the past year is the unexpected declines in production from some of the world's key exporters, particularly Russia, Venezuela and Mexico.

In other Nymex trading in Asian hours, heating oil futures rose 4.3 cents to US$3.5888 a gallon (3.8 liters) while gasoline prices rose 0.76 cent to US$3.2027 a gallon. Natural gas futures rose 5.1 cents to US$12.43 per 1,000 cubic feet.

The July natural gas futures rose 15.8 cents to settle at US$12.379 on Wednesday, again boosted by forecasts for hot temperatures in parts of the U.S. this weekend. That would boost
demand from utilities for electricity generation to cool homes and businesses.

In London, July Brent crude futures was up 64 cents at US$122.74 a barrel on the ICE Futures exchange. It rose as high as US$123.22 a barrel after news of the explosion in Kuwait.(**)

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