Oil prices rebounded Wednesday, jumping back to US$US116 a barrel after the government reported a bigger-than-expected drop in US gasoline supplies. But more signs of dwindling US demand cast doubt on the rally's durability.
In its weekly inventory report, the US Energy Department's Energy Information Administration said gasoline supplies fell by 6.4 million barrels to 202.8 million barrels for the week ended Aug. 8, nearly three times more than the 2.2 million barrel drop analysts surveyed by energy research firm Platts had expected.
The big drop in gasoline stocks prompted traders to buy oil and gasoline contracts on signs of supply tightness. However, analysts said the surprisingly large drawdown suggests that US refineries are scaling back on production in response to falling demand - not that Americans are suddenly driving more because of easing pump prices.
"There's no doubt that refiners are making less gasoline," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. "The demand is bad so why store a product that you're going to have trouble selling?"
Light, sweet crude for September delivery rose $US2.99 to settle at $US116 a barrel on the New York Mercantile Exchange, after earlier falling as low as $US112.87. Oil's advance has, for the time being, stopped a monthlong slide that took crude $35 below its July 11 high of $US147.27.
Gasoline futures also jumped, with the September contract adding 8.91 cents to settle at $US2.9323 a gallon on the Nymex. Heating oil futures rose 5.89 cents to settle at $US3.1317 a gallon.
Despite the rebound, analyst doubted crude would regain the upward momentum seen last month, noting that traders have been quick to cash in on oil rallies in recent weeks and send prices lower.
"We've got a good-sized rally ... but it still doesn't feel like it's sustainable. We're not seeing the frenzy of buying that we would have seen a couple months ago," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.
"I think the true underlying demand weakness is still out there," he added, saying he believed that Americans were not yet reacting to easing pump prices by driving more. "I don't think people are going to change their commuting habits that fast."
The EIA said demand for gasoline over the four weeks ended Aug. 8 was almost 2 per cent lower than a year earlier, averaging 9.4 million barrels a day.
The EIA also said crude stockpiles fell 400,000 barrels to 296.5 million barrels last week; analysts had expected crude supplies to increase by 500,000 barrels.
Inventories of distillate fuel, which include diesel and heating oil, decreased by 1.7 million barrels to 131.6 million barrels for the week ended Aug. 8. Analysts expected distillate stocks to rise by 1.9 million barrels.
Meanwhile, a ceasefire declared by Russia and Georgia in their conflict over South Ossetia appeared to lower concerns that hostilities there could curtail oil shipments through Georgia.
The International Energy Agency dropped its forecast on Tuesday for oil product demand from 30 developed countries, located mostly in Europe and North America, to 48.6 million barrels a day, down 1.3 per cent from last year.
The Paris-based energy watchdog's report arrived a day after China said its crude imports in July, while historically strong, were down 7 per cent from the same month last year.
The IEA cautioned it is too early to determine whether the recent fall in oil prices is a longer-term trend. It said demand in developing countries could offset declines in developed nations, and that it sees Chinese oil demand continuing to grow at a robust pace.
