Oil hovers at $123

By Margaret Orgill Reuters - Thursday, May 8 01:20 pm

LONDON (Reuters) - Oil slipped on Thursday on profit-taking after hitting a record of nearly $124 as traders weighed a rise in the dollar to a two-month high against news of a fall in U.S. diesel stockpiles.

U.S. crude for June was down 42 cents at $123.11 a barrel by 12:52 p.m., off a record of $123.93 reached earlier. London Brent crude fell 23 cents to $122.09 a barrel.

The oil market may be seeking a pause as prices have climbed by about $13 over the last week in a rally that produced fresh highs on several days, said analysts.

"We have seen a very strong run upwards this week so it could be time to take a breather," said Christopher Bellew of Bache Financial.

Late last week, Brent hit a low of $108 while U.S. crude stood at $110 before the latest rally began.

Gas oil futures, the benchmark for European heating and diesel contracts, hit a new high on Thursday of $1,154 a tonne as news of the drop in U.S. distillate stocks added to worries about a tight global diesel market.

May gas oil futures' premium to the June contract widened to as much as $25, highlighting the supply shortage in the spot diesel market, Bellew said.

May gas oil futures usually trade at a discount of about $2 to June at this time of year as European heating oil demand wanes due to the warmer weather.

DIESEL BOOM

Data on Wednesday from the U.S. Energy Information Administration (EIA) showed a decline last week in distillate inventories -- which include diesel and heating oil -- that brought stockpiles in the world's biggest energy consumer nearly 13 percent below a year ago.

Tight power supplies in China, South Africa, Chile, Argentina and parts of the Middle East have set off a worldwide boom in demand for diesel for use in electric generators, adding to robust demand for use in Europe's passenger vehicle fleet.

Weighing on oil, the euro fell to a two-month low against the dollar on Thursday, as a sharp drop in euro zone retail sales raised worries about downside risks to the region's economy.

The dollar slipped to a record low against the euro last month, boosting dollar-denominated commodity prices, but has since recovered by more than 4 percent against the European currency.

The weak dollar and Nigerian supply concerns were cited by Iran's Oil Minister Gholamhossein Nozari for the surge in oil prices to record highs, who added that if existing conditions continued, it would be possible to see prices soar to $200.

"If current conditions continue, reaching a period when oil is supplied at $200 a barrel is not out of reach," Nozari told the official IRNA news agency.

Traders will be looking at the release later on Thursday of U.S. government data for initial jobless benefit claims (1:30 p.m.) and wholesale inventories (2 p.m.) for an indication of how the economy is performing.

(Additional reporting by James Topham; editing by James Jukwey)

• Email Story
• IM Story
• Printable View
• Blog This

Recommend this article

Sponsored Links

(What’s this?)