Thursday, May 26, 2005
Squeezing Supply When We Can't Afford It
Oil rebounds on BP blast
Singapore - Oil prices rebounded in Asian trade on Thursday as news of a big blast at a BP refinery in the United States sparked a fresh round of speculative interest in the market, dealers said.
At 07:40 GMT, New York's main oil contract, light sweet crude for delivery in May, was at $54.37 a barrel, up 56c from the closing price of $53.81 in New York.
World oil prices had accelerated their decline in New York on Wednesday, falling $2.22 to close at a two-week low after the US department of energy (DoE) said stockpiles had risen sharply over the past week.
The sharp drop came amid a cooling of the speculative fever on crude oil that pushed prices up to a record of $57.60 a barrel last Thursday.
However, news of a massive explosion at BP's biggest oil refinery in the United States then triggered a fresh rise in after-hours trade in New York and after a quiet start, this continued to gain momentum during Asian hours.
"The reason why prices have recoverd so strongly is due to the big fire at the (BP) refinery," said Dave Ernsberger, a director in Singapore at energy information provider Platts.
"When you have such a big refinery, one that produces 450 000 barrels a day, experiencing an explosion, it makes people very frightened."
Oil prices had eased earlier in the day below the $54-mark as speculators cashed in on strong US inventory levels recorded this week.
The DoE said in its weekly snapshot of US inventories that crude oil in the week to March 18 rose 4.1 million barrels to 309.3 million, the highest level of stock-building in three years.
"It's about time the market goes through a correction," said Victor Shum, an analyst in Singapore with energy consultancy firm Purvin and Getz before the prices climbed upward again.
Strong comments issued by Saudi Arabia earlier this week, with its Petroleum Minister Ali Al-Naimi saying that the kingdom could increase supply by 1.5 million barrels a day, had also helped ease fears of a supply squeeze.
Ernsberger however said that the news of the BP refinery blast could ignite a fresh wave of speculative fever in the market.
"Because this is such a big explosion at a major oil refinery, speculators might feel that this is the time for them to move in again," said the analyst.
"I see prices stabilising at the current price, probably even moving up into the $55, $56 region."