Oil soars past $65 on OPEC

NEW YORK Thu May 28, 2009 7:48pm EDT

1 of 2. A woman fills her car with fuel at a BP petrol station in Dartford in southern England April 19, 2009.

Credit: Reuters/Luke MacGregor

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NEW YORK (Reuters) - Oil surged past $65 a barrel on Thursday to a fresh six-month high after OPEC decided to keep output unchanged and government data showed a steep drop in U.S. crude inventories.

U.S. crude oil for July delivery settled up $1.63 to $65.08 a barrel, the highest settlement since November 5, after hitting an intraday high of $65.44. London Brent crude rose $1.89 to settle at $64.39 a barrel.

U.S. crude stocks fell by 5.4 million barrels in the week to May 22, the U.S. Energy Administration said, above analyst expectations for a 700,000-barrel decline, as refiners ramped up output ahead of the summer.

Analysts said while the data showed gasoline demand still trailing year-ago levels, it was looking stronger during the seven days leading into the May 23-25 Memorial Day holiday weekend, which traditionally kicks off summer holiday travel.

"What we are seeing here is the demand side start to improve," said analyst Phil Flynn at Alaron Trading in Chicago.

"Gasoline demand over the Memorial Day weekend is a critical point in judging the health of the U.S. economy. I don't think the increased demand over the holiday was a fluke."

OPEC Secretary-General Abudullah al-Badri told Reuters Financial Television that U.S. demand was showing signs of recovering after the economic crisis battered global consumption and sent crude prices off record highs near $150 a barrel struck in July.

OPEC ministers meeting in Vienna opted to leave target output levels unchanged as they bet a strengthening economy and signs of rising demand would support prices.

Some members of the 12-member producer group voiced concern that high global inventories could weigh on prices, but Saudi Arabian Oil Minister Ali al-Naimi said demand was rising and would drain away excess supplies.

"The price is good. The market is in good shape. Recovery is under way. What else could we want?" he said.

Despite OPEC's optimism about demand, revised EIA estimates for U.S. oil consumption in March showed demand down more than 5 percent from year-ago levels to the lowest level for the month in 12 years.

U.S. stocks gained on Thursday as the rise in oil prices boosted energy shares and overshadowed mixed economic data.

New orders for long-lasting U.S. manufactured goods saw their biggest gain in 16 months in April and fewer workers filed for new jobless benefits last week.

(Reporting by Matthew Robinson, Gene Ramos, Robert Gibbons and Timothy Gardner in New York, Christopher Baldwin in London; editing by Jim Marshall)

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