Oil prices steadied on Wednesday above $113 (Dh416) a barrel after setting a new record overnight on growing concerns about insufficient global supply.
Oil surged to an all-time high of $114.08 a barrel on Tuesday after a high-profile report by the International Energy Agency said that Russian oil production dropped this year for the first time in a decade.
Analysts said growing investor demand for commodities – which have performed better than other financial instruments – also helped prop up prices.
“This is really driven by investors purchasing oil because returns have simply outpaced those of stocks and bonds,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. Shum said he didn’t think supply and demand fundamentals were that strong, but added that “oil’s price rise seems unstoppable.”
Oil’s recent run above $100 a barrel has been largely attributed to a steadily depreciating US currency because a weakening dollar prompts investors to seek a safe haven in hard commodities such as oil and gold. The greenback strengthened marginally against the euro on Tuesday afternoon.
Light, sweet crude for May delivery fell 15 cents to $113.64 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract closed at a record $113.79 a barrel on Tuesday, and it then jumped in after-hours trading to an all-time high of $114.08.
Traders were awaiting the release of US government data later on Wednesday on the state of America’s petroleum supplies. Last week’s EIA report showed an unexpected drop in crude inventories, which started oil on its way to several records.
The US Energy Information Administration was expected to report later in the day that crude inventories grew 1.5 million barrels last week, according to a survey of analysts by Platts, the energy research arm of McGraw-Hill Cos.
Gasoline inventories were expected to decline 2 million barrels, to post their fifth consecutive weekly drop amid increasing demand for the fuel, the survey showed.
“Implied gasoline demand typically starts to increase at this time of year, but high prices at the pump and a slowing US economy appear to have dented the pace of demand growth,” the Platts report said.
Analysts also projected a 1.7 million barrel drop in distillate stocks, which include heating oil and diesel, while refinery utilisation rates were expected to jump 0.9 percentage points to 83.9 per cent.
“The market may choose to focus on the expected product drawdowns and interpret the report as bullish,” Shum said. “But product inventories in the US are at healthy levels. The declines would simply be because refinery utilisation operating rates have not been strong, and that’s because refiners are responding to weak demand.”
Crude prices were also supported by reports of a number of supply disruptions.
Attracting the most attention was the closure of Mexico’s three main oil-exporting ports on the Gulf Coast because of bad weather that started Sunday. Only one of the ports remained closed Tuesday, according to Mexico’s Communications and Transportation Department.
In other Nymex trading, heating oil futures added 0.38 cent to $3.2777 a gallon (3.8 liters) while gasoline prices fell 0.1 cent to $2.88 a gallon. Natural gas futures rose 9.5 cents to $10.3 per 1,000 cubic feet.
Brent crude futures lost 22 cents to $111.36 a barrel on the ICE Futures exchange. (AP)
Oil steadies above $113 after rising to record overnight