Oil just off 6-week high on supply cut concerns

Oil just off 6-week high on supply cut concerns

Reuters, London

World oil prices hovered just off six-week highs on Tuesday, reflecting traders' concerns over thin global oil inventories and the possibility of a supply cut from the OPEC cartel at a time of peak summer demand.

London benchmark Brent lost 16 U.S. cents to stand at US$27.22 a barrel as traders took profits from the $1 rise in the previous session. U.S. light crude was 17 U.S. cents lower at $30.54 a barrel, just off its six-week peak of $30.86.

"Before the war, the high price was attributed to a war premium and now we can call it an uncertainty premium," said Barclays International analyst Kevin Norrish.

"There is uncertainty about the delays in Iraqi exports, about what OPEC will do, the security situation and above all the gasoline situation in the United States," Norrish said. "All these factors have added a premium to where prices would otherwise be."

Oil traders are focusing now on weekly U.S. government data due on Wednesday to indicate what gasoline inventories look like in the United States where gasoline consumption accounts for some 12 percent of world energy demand in summer months.

Traders are expecting the data to show small builds in gasoline as well as crude tanks, after last week's report showed gasoline inventories running 13 million barrels under year-ago levels while crude stocks were some 40 million barrels lower.

Oil got a further boost after Monday reports of refinery glitches in the United States, while Venezuelan exports of clean burning RFG gasoline, mandatory in many U.S. states, remain on hold as the country's oil sector recovers from a long strike.

Meanwhile Iraq, which provided some four percent of globally traded oil before the war, is yet to start exporting.

Iraq is aiming to produce some 1.5 million barrels per day (bpd) by mid-June and export roughly half of that but analysts say security problems at oilfields and damage due to post-war looting could make this time-table tough to meet.

Traders are also watching the Organization of Petroleum Exporting Countries (OPEC) for signals on whether a supply cut decision is likely when the cartel meets on June 11 in Qatar.

While some OPEC states have indicated a cut is possible in order to accommodate the return of Iraqi barrels, the recent price rise, possibly delays to Iraqi exports and weak inventory levels have called the need for a cut into question.

Analysts said that at current prices OPEC may choose to delay supply curbs rather than cause a further price spike. Prices are now close to the top of OPEC's $22 to $28 per barrel target range, mostly due to concerns over low U.S. inventories.