Oil dropped towards $73 a barrel yesterday after a US government report showed a surprise increase in gasoline inventories,easing worries about a supply crunch ahead of summer when demand peaks.
Gasoline stocks in the world's largest oil consumer rose by 2.1 million barrels in the latest week, in contrast to expectations of a drop, the US energy information administration (EIA) said. It was the first increase since February.
The EIA also said world oil prices would stay high through 2007 because of strong petroleum demand, limited surplus oil production and refining capacity, and concerns about supply disruptions due to geopolitical risks in countries like Iran.
It said none of these "forces that contribute to current high crude oil prices will ease significantly in the near future, so our best forecast is that crude oil prices will remain elevated through 2007".
The energy department's analytical arm also said in its weekly review of the oil market that "strong growth in the world economy, and particularly in China and the United States, has fuelled the need for more oil, thus putting upward pressure on prices".
The agency pointed out that global oil demand grew just under one million barrels per day (bpd) annually between 1991 and 2002, but then increased 1.5 million bpd in 2003, 2.6 million bpd in 2004, 1.1 million bpd last year and is forecast to rise 1.6 million bpd this year.
US oil prices have jumped above $70 a barrel also due to fear among traders that the West's dispute with Iran over its restarted nuclear programme could disrupt that country's oil exports, while a large part of Nigeria's oil exports remains halted because of militant violence.
"The situation in Nigeria may continue for many months [ and] market concerns about a possible supply disruption from Iran are likely to remain through at least this year if not into next year," the EIA said.
Low global surplus oil production capacity makes that fear worse and helps push up prices. The agency said unused output capacity around the world fell from 5.6 million bpd in 2002 to around one million bpd today.
"While some productive capacity has been brought online, it has been insufficient relative to demand growth. As a result, surplus capacity is extremely limited, dramatically reducing the ability to respond to any sudden surges in demand or disruptions in supply," the EIA said.
The ability of refineries to turn that crude into petroleum products has also become tighter, as refineries have ramped up production and operated for longer periods.
This has "reduced the system's flexibility to respond to any disruption in refinery production, either from hurricanes or other events," the EIA said.
Limited refining capacity makes each gallon of gasoline worth more, increasing the value of the crude oil.
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