Oil prices hit record levels as US crude stocks plummet

Oil prices surged to record levels yesterday after a huge fall in US crude stocks was announced by the Energy Information Administration (EIA). The EIA said US crude stocks dropped 7.1 million barrels last week, significantly larger than the consensus market forecast for a decline of 2.4 million barrels.

Nymex October West Texas Intermediate soared to $79.29 a barrel, a record, before easing back to trade 90 US cents up at $79.13 a barrel.

ICE October Brent gained 81 cent at $77.19 a barrel after hitting a session high of $77.27.

Traders said hedge funds would try to drive US oil to $80 a barrel to profit from significant numbers of call options open at that price.

Oil price rises, which have a knock-on effect on electricity and gas costs, could put extra pressure on the Irish rate of consumer price inflation, which is currently running at 5 per cent - double the rate for the euro zone as a whole.

But Davy Stockbrokers economist Robbie Kelleher said the volatile oil prices would have to be sustained at their current levels for a few weeks before it would have an impact.

Antoine Halff at Fimat described the crude draw as "staggering" and said: "The reality is that crude tightness in Europe and Asia has begun to affect the US in a big way."

The decline in crude stocks was due partly to a sharp fall in US imports of 674,000 barrels a day. Continuing problems in the US refining system were apparent, with refinery utilisation dropping by 1.6 percentage points to 90.5 per cent.

Crude prices had been moving higher before the US inventories data were released, as traders brushed aside Tuesday's announcement of a small production increase of 500,000 barrels a day by Opec, effective from November 1st.

Francisco Blanch, commodity strategist at Merrill Lynch, said: "The crude oil market remains exceptionally tight. Global oil production has seen a significant contraction in the third quarter of around 600,000 barrels a day compared with the same period last year. Opec's move to raise output is welcome as the market really needs the crude and non-Opec supply has continued to be disappointing."

Opec's concern that oil demand may drop sharply if the US economy slows was reflected in a softening in total US product demand, which fell 0.1 per cent year on year to average 21.11 million barrels a day over the past four weeks.

The data on US product inventories released by the EIA matched market expectations with distillate stocks (including heating oil) rising by 1.8 million barrels while gasoline stocks fell by 700,000 barrels. Although the US driving season has ended, gasoline stock levels at 190.4 million barrels remain very low. - ( Financial Times service )