Oil prices ended mixed on Friday as the market continued to digest news that Washington was considering requests to temporarily waive rules requiring cleaner-burning gasoline that have contributed to fears of a supply crunch.
A big buildup of US crude reported this week had set prices off on a gasoline-driven losing streak that has taken more than US$2 off the price of oil since it set a high on Wednesday.
New York light crude futures ended US$0.12 a barrel higher at US$34.39 a barrel, but Brent futures in London settled US$1.34 lower at US$30.21, as that market caught up with Thursday's price decline, which happened after its close.
Gasoline was down US$0.0037 cents to end at US$1.0722 a gallon, after falling nearly US$0.06 on Thursday, when the market first reacted to news of a possible waiver of clean fuel rules in some US states, which would make it easier for refiners to produce more.
"We had some short-covering after the market over-reacted to [the gasoline waiver news] and sobriety returned to the market," said John Kilduff, senior vice president at Fimat USA.
Fears of gasoline tightness had propped up the market for much of the last month, analysts said.
On Wednesday, US government figures showed commercial crude stocks rising to their highest level in 19 months and gasoline inventories building to above year-ago levels, which unwound some of those concerns and brought US gasoline futures down about 8 percent from a record high price set on Wednesday.
Some of the recent gasoline market tightness has been blamed on US federal rules requiring refiners to blend dozens of different kinds of gasoline for various states.
Energy Secretary Spencer Abraham said on Thursday the US Environmental Protection Agency was seriously considering requests from key gasoline consuming states for temporary exemptions from such requirements.
Traders said the market sold on the news.
"[A waiver] would remove manufacturing challenges that producers now face, thereby increasing gasoline yields -- we estimate by 3 percent to 4 percent," according to a Bear Stearns research note.
But some analysts said that the clean-burning fuel requirements were secondary to capacity problems and low stock levels in explaining gasoline prices.
"Our view is that, even if some of these measures are introduced, they will not help much in easing gasoline supply. This is because they do not address the central issues currently contributing to US gasoline market tightness, namely low stock levels, accelerating demand and the inability of the US refining system to respond to surges in demand for its products," Barclays Capital said.
"The big problems of low gasoline inventory and the inability of the US refining system to cope with surging demand still remain."
Traders said skepticism about compliance had limited the impact of OPEC's agreement on Wednesday to forge ahead with its April 1, million-barrel-per-day supply cut.
Kuwait's foreign minister, on a visit to Washington, said on Friday that OPEC was not likely to cut back production when prices are much higher than the agreed price band of US$22 to US$28 a barrel. But Sheikh Mohammad al-Salem declined to say whether Kuwait will seek to reverse OPEC's decision.
Kuwait was one of the members who had recommended to the cartel's meeting this week that the group consider delaying tighter restrictions to allow prices to cool.
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