Crude futures dipped in Asia yesterday but hovered above the US$54 per barrel mark despite a fresh pledge from oil cartel OPEC to maintain current production levels, as strong demand for diesel rekindled worries of a distillate shortfall in the second half of the year.
Midafternoon in Singapore, light, sweet crude for the July contract fell 30 cents to US$54.30 a barrel on the New York Mercantile Exchange. Overnight in New York floor trade, crude prices had surged US$2.63 to close at US$54.60 per barrel.
Oil prices are now around 25 percent higher than a year ago but would still need to surpass US$90 a barrel to match the inflation-adjusted high set in 1980.
Analysts attributed the start of Wednesday's rally to robust heating oil prices, which shot up by 9.05 cents to US$1.54 a gallon. Gains then spread to other commodities, they said.
"With the US driving season officially underway, gasoline was supposed to spark, but the fireworks are in heating oil instead," said Energyintel analyst Matt Piotrowski.
This, he said reflected a "tight global market for road diesel and other middle distillates, such as jet fuel, kerosene and heating oil."
Demand traditionally peaks in the second half of year, when heating oil and jet fuel usage rises during the Northern Hemisphere winter.
On Wednesday the president of the Organization of Petroleum Exporting Countries, Sheikh Ahmad al-Sabah, said the cartel, which produces 40 percent of global crude, would maintain its current production ceiling until the third quarter of this year.
"I have discussed this issue with some OPEC members and sensed close views toward keeping the production ceiling at its current condition," said al-Sabah, Kuwait's oil minister.
OPEC is to meet June 15 in Vienna to discuss production levels. Al-Sabah's comments are likely to rile price hawks like Venezuela who have indicated it would prefer an output cut to keep prices high.
The 11-member group is pumping out around 30 million barrels daily to keep prices in check and calm markets.