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Wed, May 15, 2002 - Page 21 News List

US light crude oil nears US$29 per barrel in the region


US oil prices hovered near eight-month highs just below US$29 yesterday as the market predicted further shrinkage of the US crude supply cushion and pondered a possible supply crunch at the end of the year.

US light crude rose US$0.28 in Asia to US$28.66 a barrel, extending Monday's US$0.39 rise in New York. Prices are at the highest level since mid-September, having gained more than US$2.20 in the past five trading days.

Weekly US fuel stocks figures scheduled to be released later yesterday are expected to show a drop in national crude inventories of about 2.5 million barrels, taking levels into a year-on-year deficit for the first timethis year.

The American Petroleum Institute report comes a day after the West's energy watchdog, the International Energy Agency (IEA), predicted that oil supplies could tighten significantly in the next six months and inventories could plunge dangerously low if the OPEC cartel maintained its supply curbs.

"We're facing a situation in the latter part of the 2002 not unlike year 2000, when OPEC was in a position of having to unwind quotas to prevent too tight an oil balance," said Michael Rothman, senior energy specialist at Merrill Lynch, in a daily market comment.

The IEA warned that current production by the Organisation of the Petroleum Exporting Countries could cause stocks to fall dangerously low by September if supply curbs by the cartel coincided with a strong upswing in demand, as in 1999 after the Asian economic crisis.

"If producers keep output flat, the consequence is a significant stock drop and we have seen this happen before," said Klaus Rehaag, editor of the report, recalling 1999 when shrinking stocks led oil prices spiking above US$35, the highest in a decade.

The IEA said OPEC production fell to its lowest level since June 1993 in April because Iraq suspended exports for a month in protest of Israel's military incursions into Palestinian areas.

Having slashed output by almost 20 percent since the start of 2001, some OPEC ministers have signalled that there is unlikely to be any rise in group output at a meeting set for June.

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