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Oil prices fall

By Brad Foss Ap Business Writer 3 min read

WASHINGTON (AP) – Oil prices fell for the third straight day on Wednesday, slipping below $53 a barrel after a rally that was sparked by a drop in supplies and as brokers locked in profits from a recent runup. Crude futures initially climbed as high as $55 a barrel on the New York Mercantile Exchange after the Energy Department released data showing that the nation’s commercially available supply shrank by 3 million barrels last week. But the buying gradually dried up and oil prices headed south.

July light sweet crude fell $1.22 to settle at $52.54 a barrel on Nymex.

“We just couldn’t sustain the rally,” oil broker Tom Bentz at BNP Paribas Commodity Futures said. “Heating oil was particularly weak.”

July heating oil futures fell by 4.8 cents to $1.497 per gallon, while gasoline futures dropped by 1.82 cent to $1.4975 per gallon.

Last week, oil prices climbed by more than $3 a barrel as market psychology was dominated by fears of a possible heating oil crunch later in the year. While such talk has not disappeared, concerns were quelled somewhat by the latest government data, which showed a rise in the U.S. inventory of distillate fuel, which includes heating oil and diesel.

Prices had fallen on Monday and Tuesday due to profit taking and the possibility that the Organization of Petroleum Exporting Countries might lift its output ceiling when it meets next week in Vienna.

OPEC’s acting Secretary-General Adnan Shihab-Eldin said in Brussels, Belgium, on Wednesday that the cartel will consider raising its production ceiling by 500,000 barrels a day when it meets next week in Vienna.

Current oil output is around 30.1 million barrels a day, he said, while the group’s 10 members subject to a quota are pumping about 28 million barrels a day. OPEC, which currently has an official production ceiling of 27.5 million barrels a day, meets June 15.

Shihab-Eldin said the group would monitor demand and ensure that its customers didn’t go short.

“We will continue with the policy of producing at these levels if demand stays strong, and if demand gets stronger we’re ready to increase,” he said.

In its latest petroleum supply snapshot, the Energy Department said crude oil inventories fell last week by 3 million barrels to 330.8 million barrels. Inventories are about 10 percent above year ago levels.

The agency’s data showed gasoline inventories fell by 100,000 barrels to 216.6 million barrels, but were still 6 percent higher than a year ago. The supply of distillate fuel, which includes diesel, heating oil and jet fuel, grew by 1.3 million barrels to 107.7 million barrels.

The report also showed that U.S. oil imports fell by an average of 478,000 barrels a day last week, another factor that fed into the early rally.

Even after oil prices declined for the third consecutive day, crude futures remain about 40 percent higher than a year ago.

Crude prices rose in 2004 as a surge in global oil demand and unplanned outages left excess capacity hovering about 1 percent above daily consumption of over 82 million barrels daily, leaving little wiggle room in the supply chain.

“The main factor in the high prices is that there is limited spare production capacity. It is the key factor supporting high prices,” said Victor Shum, oil analyst for Texas-based energy consultants Purvin & Gertz in Singapore. “OPEC says the spare production capacity is in Saudi Arabia, and if they raise output further, there will be even less spare capacity.”

Global oil demand will rise to around 84.7 million barrels daily, the U.S. Energy Information Administration said Wednesday.

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Associated Press Writers George Jahn in Vienna, Austria and En-Lai Yeoh in Singapore contributed to this report.

AP-ES-06-08-05 1604EDT

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