NEW YORK (Reuters) - U.S. oil prices firmed on Wednesday to close above $41 a barrel for the first time in six weeks, after U.S. 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."
U.S. light crude (CLc1: Quote, Profile, Research) surged $1.53 to close at $40.97 a barrel, its highest since the New York Mercantile Exchange closing price record of $42.33, hit on June 1. London Brent crude (LCOc1: Quote, Profile, Research) was up $1.85 to close at $38.54 a barrel.
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 July 9. Gasoline stocks were off 200,000 barrels at 205.9 million, while 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 Citgroup 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.
The International Energy Agency, in its monthly report released on Tuesday, said world oil demand will continue to grow rapidly in 2005, fed by global economic expansion, though gains will not be as dramatic as this year.
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 like 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.
Only Saudi Arabia, the world's biggest exporter, has any significant spare production capacity, with the other OPEC producers already pumping flat out and Iraq's output recovering from war damage.
Industry sources in Iraq said on Tuesday the country's oil exports would remain limited to southern terminals as sabotage and infrastructure defects prevent a reopening of a northern pipeline to Turkey.
Iraq exports about 1.8 million bpd from southern oil terminals at Basra and Khor al-Amaya and officials recently said they hoped to resume overseas sales of about 350,000 bpd from Turkey's Mediterranean port, Ceyhan.
"The (northern pipeline) cannot be operated nonstop. Saboteurs know every section and they are hitting it at will," a well-placed engineer said of the dual northern pipelines.
Before the U.S.-led invasion last year, Iraq exported 800,000 bpd through Ceyhan.
More Financial News