Oil prices stabilize after strong rally on supply worries

NEW YORK (AFP) - Global oil prices eased slightly yesterday as traders took back some profits from a rally this week at near-record peaks due to supply concerns, traders said.

New York's main oil futures contract, light sweet crude for delivery in August, shed 35 cents to close at 75.57 dollars per barrel. It earlier had surged to 76.13 dollars, the highest level since August 9, 2006.

In London, Brent North Sea crude for September delivery closed virtually flat, down three cents at 77.64 dollars per barrel after peaking at 77.98.

Prices are within reach of the all-time records set a year ago: 78.40 dollars in New York on July 13 and 78.64 dollars in London on August 7.

Despite relatively high gasoline prices, motor fuel consumption in the United States was racing off the charts during the peak summer driving season. Last week it hit 9.71 million barrels per day, the second-highest level to date, according to the US Department of Energy (DoE).

At the same time, gasoline inventories fell by 2.3 million barrels to 203.3 million, a level 4.5 percent lower than a year ago. The consensus analyst forecast was for a rise of 700,000 barrels.

The surprise drop in US gasoline stocks helped drive prices higher, as did further signs that demand for crude would continue to climb.

China, the second-biggest oil consumer after the United States, announced Thursday that its economy expanded 11.5 percent in the second quarter compared with a year ago, the fastest pace since 1994.

China represented 36 percent of the rise in crude demand in the second quarter, the DoE said.

"The inescapable truth is that a tightening global supply outlook and rising global demand expectations are emboldening buyers," said John Kilduff, an analyst at Man Financial.

James Williams, an analyst at WTRG Energy, pointed to the role of speculation driving the market higher.

"The last two weeks have seen an influx of speculative money into the crude oil market and all of the specs seem to be bulls," Williams said.

Prices had rallied on Thursday also after French energy giant Total said a problem with a generator at its 220,000 barrel-per-day Dalia oilfield in Angola had shut in around 50 percent of output at the field.

Oil prices have risen strongly since last week when the International Energy Agency raised its 2008 forecast for oil demand by 2.5 percent to 88.2 million barrels a day.

The IEA has called for the OPEC producers' cartel to pump more crude, notably during the ongoing driving season.

However, the Organization of the Petroleum Exporting Countries has repeatedly insisted it does not plan to raise output.

Leading OPEC member Iran said Tuesday there was no need for an emergency meeting of the cartel to discuss high oil prices, saying the market was already well-supplied with crude.

"In our view, the oil market is highly overheated at present, irrespective of some news that has favoured prices," Commerzbank analysts said.

"The actual shortage is being overestimated by market players," they added in a research note.