Oil's march to $100 stalls

Crude comes within $1.38 of triple-digit levels, but gains are tempered after U.S. inventories fall less than expected.

Oil prices rose Wednesday and remained within striking distance of $100 a barrel, but the assault on the triple-digit number was thwarted by a report showing supplies in the U.S. fell less than expected.
U.S. light crude for December delivery rose 65 cents to $97.65 a barrel on the New York Mercantile Exchange, after setting a new trading high overnight of $98.62. The price stood at $97.60 just before the inventory report was released.

Oil's assault on $100 a barrel stalled Wednesday after U.S. supplies fell less than expected.

Traders were expecting oil prices to climb following the inventory report. Instead, oil seesawed after the announcement that supplies declined but not as much as expected.

In its weekly inventory report, the Energy Information Administration said crude stocks fell by 800,000 barrels last week. Analysts were looking for a drop of 1.6 million barrels, according to a Dow Jones poll.

Distillates, used to make heating oil and diesel fuel, rose by 100,000 barrels while gasoline supplies fell by 800,000 barrels. Analysts were looking for a 500,000 barrel decline in distillate supplies and a 200,000 barrel gain in gasoline stockpiles.

Most of the decline in crude is being blamed on an outage from Pemex, Mexico's national oil company. Mexico, after Canada, is the second largest source of imported U.S. oil.

While oil has been expected to test the $100 mark for several days, one analyst said crossing the psychologically important threshold may prove a challenge.

Many hedge funds bought when prices were around $80 a barrel, and many may want to cash out and take the $16 or $18 profit without waiting around to see if the $100 level can be broken, according to Peter Beutel, an oil analyst at Cameron Hanover.

We certainly would not risk $16 or more for the last $2 or $3 a barrel, Beutel wrote in a research note.

Prices hit a new record earlier in the day after the International Energy Agency said China and India will sap world oil supplies faster than previously thought.

In its yearly forecast, the agency said under current policies the world will use 50 percent more energy by 2030 than it uses today, with 45 percent of that demand coming from India and China.

The two countries are expected to use nearly four times more oil by 2030, and IEA questioned the world's ability to meet such rampant demand.

A falling dollar also pushed prices higher. The dollar hit a fresh low of $1.4729 against the euro Wednesday on speculation that China would seek to diversify some of its foreign currency reserves.

The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars. Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.

Source - CNN Money