LONDON – Oil prices rose on Wednesday as the re-election of President Bush offset a big increase in U.S. crude inventories ahead of winter.
Light crude for December delivery traded as low as $48.65 per barrel before reversing course and rising 98 cents to $50.60 per barrel in afternoon trade on the New York Mercantile Exchange (search).
Prices initially tumbled after the U.S. government's Energy Information Administration (search) reported that crude oil stocks rose 6.3 million barrels to 289.7 million last week.
Crude stocks have risen more than 10 million barrels in the last two weeks as they recover from the impact of Hurricane Ivan (search) which tore into the oil-producing U.S. Gulf of Mexico in September.
Global supplies have also been boosted by the highest production from the OPEC oil cartel in 25 years and by improved supplies from Iraq over the last two months.
"Imports are back at comfortable levels so any concerns about crude availability have been dissipated considerably," said Jim Ritterbusch, President of Ritterbusch and Associates.
Distillate stocks, including heating oil and diesel fuel dropped down 900,000 barrels to 115.7 million barrels and are now some 12 percent below last year. Distillate fuel demand is running 8.1 percent over last year.
A second Bush administration would likely continue filling U.S. emergency oil stockpiles despite high prices and could stoke nerves about U.S. policy in the Middle East, particularly OPEC's second-biggest producer Iran, dealers said.
"A Bush victory will be big for oil demand and keep prices high," said Phil Flynn, an analyst at Alaron Trading in Chicago. "Not only will the SPR be filled, but I think they may expand it."
Bush plans to fill the final 30 million barrels of the 700 million barrel Strategic Petroleum Reserve (search) (SPR) by next year.
Prices had tumbled from last week's record high at $55.67 on speculation that a win for Kerry would halt deliveries into the Strategic Petroleum Reserve (search) (SPR).
"A Bush status quo results in somewhat higher oil prices both in the short and the longer term in my view," said Tim Evans, analyst at IFR Energy Services.
Traders also fear further instability in the Middle East, a factor that has fuelled oil's rise of more than 50 percent this year.
"In particular, if another Bush government moves on to Iran, then oil prices would go very high," said Andy Xie, Morgan Stanley's chief Asia economist.
In Iraq saboteurs carried out the biggest attacks yet against the northern pipeline infrastructure on Monday evening, forcing Baghdad to halt 300,000 barrels per day of exports via Turkey.