Oil prices hold above $54 per barrel

LONDON: Oil prices held steady on Wednesday as traders absorbed signs of slowing demand growth in China and awaited US inventory data expected to show a seventh straight weekly build in crude stocks.

US light crude fell 11 cents to $54.12 a barrel, more than $3 below an all-time peak of $57.60 on March 17. London Brent was up 5 cents to $53.08 a barrel.

Oil prices have risen 25 percent this year as dollar weakness has encouraged funds to switch money out of treasury markets and into commodities. But analysts said rising US crude stocks — already at their highest level in nearly three years — could prompt some big-money speculators to take their winnings. US government data due out at 1530 GMT on Wednesday is expected to show a 2.2 million barrels rise in crude inventories last week, a Reuters survey of 13 analysts showed.

“If we get yet another hefty rise in crude stocks you would have to start thinking all those hedge funds would be getting a bit nervous with their positions at the end of the quarter,” said David Thurtell, a Sydney-based commodities strategist with Commonwealth Bank of Australia.

Rapid world demand growth has strained international supply but analysts say that oil demand growth in China, the world’s No. 2 oil consumer, may also be slowing more sharply than expected.

Diesel exports have surged, gasoline shipments are on the rise and fuel oil imports remain below par, while commercial oil inventories are still unusually high after a wave of stockpiling in the last months of 2004. “The market does not yet seem aware that Chinese demand, the principal engine of global growth, is showing clear signs of running out of steam,” said Deborah White of SG Commodities.

“At $50 a barrel, we have reached the price level which adjusts demand to supply.” The OPEC producer cartel lifted its formal output ceiling by 500,000 bpd to 27.5 million bpd in mid-March in an effort to pump up second quarter global stocks, creating a cushion for anticipated robust fourth quarter demand.

OPEC President Sheikh Ahmad al-Fahd al-Sabah said on Tuesday the group does not need to increase oil production now but will need to raise supply by more than one million bpd for the third quarter.

“But if there is supply disruption, there is not a lot of wiggle room as far as what OPEC and non-OPEC producing countries can do to boost production if needed. Spare capacity is really the key question,” said John Brady, an energy broker at ABN Amro in New York said.

Output from the Organisation of the Petroleum Exporting Countries is close to a 25-year high and non-OPEC producers are pumping at full tilt, leaving little in the supply chain for any output hitch. reuters

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