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Oil prices above $59 after supply dips

Business Week | June 22, 2005

Oil prices traded above $59 a barrel on Wednesday after the U.S. government released data showing a decline in crude inventories but a build in gasoline and distillate fuel supplies.

Light sweet crude for August rose 21 cents to $59.25 in early trade on the New York Mercantile Exchange.

In London, Brent crude fell 8 cents at $57.42 on the International Petroleum Exchange.

The U.S. Department of Energy's petroleum report showed that domestic inventories of crude oil shrank last week by 1.6 million barrels to 327.4 million barrels, or 8 percent above year ago levels.

The supply of distillate fuel, which includes diesel and jet fuel, grew by 1.3 million barrels to 111.5 million barrels, or 1 percent above year ago levels. Gasoline supplies grew by 200,000 barrels to 215.9 million barrels, or 4.5 percent above last year.

On Tuesday, July crude futures expired at $58.90.

"We've seen the price push high in a short space of time and there was profit-taking in the last day but sentiment is still very bullish," said ANZ Bank energy analyst Daniel Hynes from Melbourne, Australia. "I expect to see prices start to push a bit higher once these funds have taken profit."

Crude futures are around 50 percent higher than a year ago, but would have to surpass $90 to reach the all-time inflated adjusted record set in 1980.

In its energy market research note, PVM Oil Associates said the bullish trend will extend well into later this year, saying: "Worries of tightness ahead ... are still keeping the contracts from November upwards above the $60-per-barrel threshold."

In Norway, negotiations succeeded in averting an offshore platform strike that could have cut Norwegian oil production by 1 million barrels a day -- a third of the country's daily production.

But while that strike action was avoided, markets were also watching for possible unrest in Nigeria that could derail exports from Africa's largest producer.

A major ethnic organization in southern Nigeria said it was planning a three-day rally demanding a greater share of oil wealth for producing regions, and warned oil companies they should shut down during the protest. Protests are planned to take place within the next few weeks, the Ijaw Youth Council said.

The news comes just after six oil workers were kidnapped last week. The U.S. Embassy closed briefly over the incident.

"The real kicker (for the spike) was the geopolitical issues. The Nigerian hostage situation brought it back to the front of people's minds," said Hynes. "While geopolitical issues have long been part of the high price period, it has taken a back seat in recent months. That was a reawakening," he said, alluding to Nigeria.

Nigeria, the fifth-largest source of U.S. crude, has been wracked by unrest for much of last year and played a part in the crude price rise last year.

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Associated Press Writers Brad Foss in Washington and En-Lai Yeoh in Singapore contributed to this report.

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