Promise of Global Recovery Pushes Oil Past $60 a Barrel

Oil is pumped in Bahrain. OPEC's production restraint and a rebound in Chinese oil imports have boosted crude prices.
Oil is pumped in Bahrain. OPEC's production restraint and a rebound in Chinese oil imports have boosted crude prices. (By Hasan Jamali -- Associated Press)
By Steven Mufson
Washington Post Staff Writer
Wednesday, May 13, 2009

Here's an unwelcome sign of economic recovery: higher oil prices.

Crude oil prices briefly topped $60 a barrel yesterday, bolstered by a rebound in Chinese oil imports, signs that the U.S. economy may be at or near its bottom and continuing production restraint by the Organization of the Petroleum Exporting Countries.

Oil touched its highest price since Nov. 11. It has climbed by a third this year and by more than two-thirds since a February low. Prices are rising at U.S. pumps, as well; the nationwide average price of gasoline jumped by 16.2 cents, or 7.8 percent, last week to $2.24 a gallon, the highest level since October.

The rise in oil prices in March, and an increase in oil imports in February, also contributed to a small increase in the U.S. trade deficit in March, the Commerce Department reported yesterday. Analysts expect the rise in prices over the past month to push the trade deficit up more sharply in April.

Some analysts warned that the increase in oil prices, which has been mirrored by an increase in other commodity prices, might be premature given continued weakness in the economy. They suggested that investment funds, betting on growth and seeking a hedge against a possible rise in deficit-driven inflation, might be responsible in part for the increase in the price of oil and other commodities. Even the price of U.S. natural gas, in an enormous glut, has jumped 39 percent since April 27.

"To me, the fund flows are inflating the price far more than the fundamentals are," said Edward Morse, managing director and chief economist at LCM Commodities. "It doesn't make sense."

Morse noted that May is the weakest month of the year for oil demand, world commercial inventories are at least 500 million barrels higher than a year ago and there is about 5 million barrels a day of excess global production capacity, reducing the chances that a geopolitical event could set off a spike in prices.

In addition, the Energy Department's Energy Information Administration this week reduced its forecast of global oil demand by 400,000 barrels a day, after earlier downward revisions. The EIA also reported that U.S. petroleum inventories are at a 19-year high. The price of crude oil on the New York Mercantile Exchange settled at $58.85.

A lot of uncertainty revolves around China, where oil imports rose 14 percent over levels from a year earlier. Paul Ting, an independent oil analyst, said China's inventories in March stopped rising for the first time in 14 months, with gasoline and diesel stocks tumbling by a total of 15.4 million barrels in the month. Gasoline inventories fell especially sharply, with the ratio of inventories to consumption hitting a 30-month low.

"We would expect apparent consumption in April to be stronger than the past few months and for this trend to continue through the year," according to a Barclays Capital report.

But Chinese inventory numbers are uncertain because the government has taken advantage of low commodity prices to build strategic reserves, Barclays said. Moreover, Ting noted, other Chinese indicators remain relatively weak; imports and exports are still down about 23 percent from a year ago.

Many experts say the world is well-supplied with oil for now. At the Center for Strategic and International Studies last week, the chief executive of Saudi Aramco, Khalid al-Falih, said "there is plenty of oil on the market, and sometimes it seems that there is a shortage of storage capacity."

Asked whether OPEC might increase production, he said that was up to the oil ministry but added "we're not seeing any immediate increase in production or any immediate increase in demand."

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