OIL FUTURES: Crude Falls In Asia But Supply Concerns Persist

SINGAPORE (MarketWatch) -- Crude-oil futures slipped in Asia Thursday, as buyers paused after data showed U.S. crude inventories rose more than expected, but benchmark contracts stayed close to their multiyear highs as market attention remained glued to Libya's supply problems.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at $108.60 a barrel at 0605 GMT, down 23 cents in the Globex electronic session. May Brent crude on London's ICE Futures exchange fell 28 cents to $122.02 a barrel.

The "increase in U.S. oil stockpiles helped put the brakes on crude's rally," said a trader at Hyundai Oilbank.

According to data released Wednesday by the U.S. Department of Energy, crude-oil stockpiles increased by 2 million barrels in the week to April 1, to 357.7 million barrels, compared with an average estimate of analysts surveyed by Dow Jones Newswires of an increase of 1.6 million barrels. High stockpiles indicate that demand is sluggish in the U.S.

BNP Paribas said in a research note that U.S. "crude-oil imports since the beginning of the year have not sustained increases in excess of 9 [million barrels a day]...One reason may be tied to seemingly entrenched lower capacity utilisation rates in refining."

Gasoline stockpiles fell by 400,000 barrels to 216.7 million barrels, according to the DOE data, down by nearly 8 million barrels compared with a year ago after six straight weeks of declines. The gasoline draw was less than analysts' average expectation of 1.7 million barrels.

Market participants said the continuing turmoil in Libya and other oil-producing countries is triggering concerns of supply shortages--and with little effort shown to raise production, oil prices have plenty of upside.

"The movement of Brent prices above $120 per barrel has provided no trigger for a proactive policy stance from producers," said Paul Horsnell at Barclays Capital. "The nature of this lack of response and general drift of recent policy statements suggests that producers are a long way from seeking actively to bridle in the upside for prices, leaving the door to $130 Brent swinging open," he added.

Saudi Arabia has increased output to make up for the suspension of Libyan exports, but OPEC as a group hasn't raised its output ceiling.

"In the short term, given the loss of Libya oil exports, a real disruption of the light, low-sulphur crude from Algeria or Nigeria could trigger higher prices ahead," said Gordon Kwan, Head of Energy Research at Mirae Asset Securities.

Light, sweet crude is required to make low-sulphur transportation fuels and "there is no capacity to replace that anywhere, whatever the level of Saudi spare production capacity," Kwan added.

Traders will likely focus on the European Central Bank's policy-setting meeting later in the global day, as the U.S. dollar could weaken against the euro--providing further support for dollar-denominated crude prices--if the ECB raises its policy rate. Economists expect the ECB will raise its main short-term interest rate by 25 basis points to 1.25% at its meeting, due to be announced at 1145 GMT.

Nymex reformulated gasoline blendstock for May--the benchmark gasoline contract--fell 57 points to $3.1872 a gallon, while May heating oil traded at $3.1831, 81 points lower.

ICE gasoil for April changed hands at $1,020.50 a metric ton, down $5.00 from Wednesday's settlement.

(Source: http://www.marketwatch.com/story/oil-futures-crude-falls-in-asia-but-supply-concerns-persist-2011-04-07)