Oil prices steady as US crude demand lowest in 26 years

13-Aug-08

Oil steadied above US$113 on Wednesday, after falling to its lowest since May 2 in the lieu of US oil use at its lowest in 26 years. As per the Energy Information Administration (EIA), the US (world's largest consumer) oil demand fell by an average 800,000 bpd on-year during H1, marking the steepest fall since 1982. There is a transition from supply concerns to falling demand particularly in the United States thereby turning the attention towards Europe and Asian economies. Post-escalation of demand from China and other emerging economies spurred oil on a six-year rally that sent prices up sevenfold at its peak, the scenario has turned, with high prices and weaker economies slowing demand for oil while the dollar is on a six-month high relative to other currencies. Also, China (second largest oil consumer) reported on Monday an unexpected 7% decline in July crude imports, the biggest monthly drop since January 2005 as refiners shy away from soaring crude costs and lagging domestic fuel prices. Amid the gloomy outlook, traders will eye the weekly US inventory data due late on Wednesday. As per a poll of analysts, crude stocks likely fell by 200,000 barrels last week. The stand-off between Russia and Georgia remained supportive, although mostly taking a back seat so far this week. Russian President had ordered a halt to military operations in Georgia on Tuesday, but Tbilisi said Moscow was still bombing towns and villages. BP PLC shut down its Western Route Export Pipeline (WREP), running from its Caspian Sea fields through Georgia but said neither pipeline had been damaged by the recent fighting. A third BP pipeline that runs through Georgia, the Baku-Tblisi-Ceyhan oil pipeline, was shut last week following an explosion in Turkey.