LONDON – World oil prices held firm above $40 a barrel on Friday after weekly data showed surprisingly strong demand in the United States that is soaking up extra OPEC output and leaving little leeway for supply disruptions.
U.S. light crude (search) eased 28 cents to $40.05 a barrel after jumping a $1.25 on Thursday. Crude hit a 21-year peak at $42.45 in early June. London Brent (search) slipped 29 cents to $37.48 a barrel.
U.S. prices have risen from a recent low of $35.52 at the end of June because of the strength of U.S. demand and a series of supply outages in Norway, Nigeria and Iraq.
U.S. demand continues to outpace most projections, despite high prices. Petroleum product consumption in the four weeks to July 2 rose 3.4 percent to 20.461 million bpd, the U.S. government's Energy Information Administration (search) said on Thursday. Demand for the year to date is up 2.9 percent to 20.396 million bpd
"If you look at the EIA data, refinery utilization was very high but gasoline stocks were only marginally up, that implies strong demand," said a New York broker.
"The market is worried that if there's any refinery or import disruption, we would have significant problems with supply."
The EIA reported that national gasoline stocks rose by just one million barrels to slightly over 206 million barrels despite the high refinery production rate and imports of 1.3 million barrels per day (bpd), the second biggest weekly average on record.
"Demand remains strong looking at these numbers. There isn't that much spare (crude output) capacity around. Any disruption will cut into what is already a tight market," said David Thurtell at Commonwealth Bank of Australia.
With OPEC already pumping close to full capacity, there is little more the cartel can do to douse prices.
Saudi Arabia continues to pump 9.1 million bpd, much more than its official OPEC quota, but higher production will not guarantee cheaper crude, Saudi Oil Minister Ali al-Naimi said in a newspaper interview.
"Saudi Arabia produces 9.1 million barrels a day and can raise that up to 10.5 million," he said in an interview with French daily Liberation. "But if the market is convinced that there will be a supply problem, we can't change that."
OPEC president Purnomo Yusgiantoro said producers would go ahead with a 500,000 bpd increase to official production limits on August 1, following a two million bpd increase this month.
"Our decision is in place, up until now we will still increase by 500,000 barrels a day from August. This decision is still valid," Purnomo said.
OPEC meets on July 21 in Vienna and may discuss raising its official price target range of $22-$28 a barrel to more closely reflect prevailing prices.