NEW YORK (Reuters):
CRUDE OIL surged four per cent on Monday as dealers worried rising global demand for diesel would outpace refiners' ability to produce the fuel and OPEC ministers signalled the cartel is powerless to rein in runaway prices with an output hike.
United States July light sweet crude was up US$2.08 to US$55.62 a barrel on the New York Mercantile Exchange, after a 1.4 per cent slide on Friday. London Brent futures, which fell more than US$1 on Friday, were US$2.11 higher at US$54.78 a barrel on the International Petroleum Exchange.
The strength tracked big gains in heating oil and gas oil futures as oil traders focused on surging world diesel consumption, which could leave consumers with tight distillate stockpiles ahead of the Northern Hemisphere winter.
DIESEL DEMAND
Heating oil futures, which are the benchmark for pricing distillates like diesel and jet fuel, jumped to a fresh two-month high near US$1.68 a gallon.
U.S. diesel demand over the past four weeks has been running more then six per cent higher than last year, according to the most recent government data, as the trucking industry moves Chinese imports to market from the West Coast.
Fresh data from Germany's oil industry umbrella group showed on Monday that German heating oil sales were also up more than 50 per cent in May compared with a year ago, while total oil products sales were up 13 per cent.
"Diesel prices have been sustained by several factors, including strong global demand, extended refinery maintenance on upgrading units, and refinery disruptions in the Caribbean," Goldman Sachs said in a report.
Dealers have been concerned that refiners are ill-equipped to handle the strong growth in diesel demand while still upping production for gasolene during the summer driving season.
OPEC'S MOVE
The Organisation of Petroleum Exporting Countries signalled it was ready to hike its production ceiling by half a million barrels per day at its meeting Wednesday.
But the cartel acknowledged the move would likely not raise actual output because of a lack of spare production capacity as well as a shortage of refineries to run the crude.
"We are prepared to raise the ceiling," Saudi Oil Minister Ali al-Naimi said in Vienna ahead of the Wednesday meeting. "But where are the customers? "You know and I know that what is driving the price is not supply. It's the lack of refining capacity world-wide."
OPEC is already pumping well above formal quotas, so any increase to the official quotas will merely legitimise current over-production. "The market accepts that OPEC is producing almost at capacity and there is very little it can actually do to bring down prices," Rob Laughlin at Man Financial in London said.
