Crude oil not dampened by increasing crude supplies and signs of weakness in retail and transportation

06-Aug-09

Crude oil prices have risen to levels of US$72/barrel spiking in the week from levels below US$63/barrel on investor optimism regarding recovery in the US economy. Oil prices have risen despite increasing crude supplies and rising signs of weakness in major sectors like retail and transportation. The Energy Department's Energy Information Administration has reported a drop in crude inventories by nearly 2 mln barrels, implying that about 7 million barrels of crude have been put into storage in the past two weeks as consumers and businesses pull back. The Institute for Supply Management reported that the services sector contracted more sharply than expected in July as retailers, financial services, transportation and health care sectors experienced the 10th straight month of declines. These businesses make up 80 percent of U.S. economic activity. At current levels, demand for petroleum products is about one million bpd lower than last years levels, hence refiners have reduced operating capacity to about 84%, about 9% below conventional levels. Any economic recovery is chiefly dependent on consumers, and the current scenario reveals that consumers are preferring to save money rather than spend it.