oil supplies always at risk

Oil seesaws after Kuwait explosion
Crude prices fall into negative territory after spiking on news of Kuwait petrochemical plant explosion.
BANGKOK, Thailand (AP) -- Oil prices were flat after rebounding to near $123 a barrel earlier Thursday on reports of an explosion at a Kuwaiti petrochemical plant.

Light, sweet crude on the New York Mercantile Exchange fell 9 cents to $122.21 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.

The contract rose as high as $123.25 earlier during Asian trade; it fell $2.01 in Wednesday's floor session to $122.30 a barrel. That was oil's lowest settlement since May 6.

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

In its weekly inventory report, the U.S. Energy Department's Energy Information Administration said U.S. demand for gasoline dipped 1.4% 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% from its May 22 high of $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, Fla.-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%. Malaysia said it would hike gasoline prices by 41% and electricity for commercial and industrial users by 26%.

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

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 $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 $3.5888 a gallon while gasoline prices rose 0.76 cent to $3.2027 a gallon. Natural gas futures rose 5.1 cents to $12.43 per 1,000 cubic feet.

The July natural gas futures rose 15.8 cents to settle at $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 $122.74 a barrel on the ICE Futures exchange. It rose as high as $123.22 a barrel after news of the explosion in Kuwait.

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