Tue Jul 20, 2004

LONDON (Reuters) - Oil prices eased on Tuesday, but held above $41 a barrel, supported by concerns robust world demand is stretching supplies to the limit.
U.S. light crude was four cents weaker at $41.60 a barrel, still only around a dollar below a 21-year peak hit in early June of $42.45, the highest price since crude futures were launched on the New York Mercantile Exchange in 1983.

In London, benchmark Brent futures eased eight cents to $37.82.

"The sentiment in the market is very simple. Demand keeps coming in stronger than expected," said Deborah White, senior economist at S G Commodities. "While in our view OPEC has no spare capacity available in less than 90 days."

Oil stocks in the United States, the world's leading consumer, have been building, but traders are concerned that supplies, especially of refined products are inadequate.

The latest set of U.S. government stocks data to be released on Wednesday was expected to show crude inventories rose last week, but gasoline stocks fell in response to heavy demand.

"There is a genuine worry if there's enough capacity to supply both crude oil and oil products," said Nigel Saperia, an oil trader at Glencore.

RISING DEMAND

In its first forecast for 2005, the Organization of the Petroleum Exporting Countries on Monday said it saw demand for its crude up 340,000 barrels per day (bpd) to an average 27.36 million bpd, from 27.02 million bpd in 2004, and following an increase of 590,000 bpd this year.

He is expected to say that the U.S. economic recovery is solid and to blame a slowdown in June on a summer lull.
In an attempt to calm prices, OPEC has implemented a series of production increases and has said it is adding a further 500,000 bpd from August.

Analysts say the change to the formal production ceiling effectively makes little difference because the cartel is already pumping well in excess of official quotas.

OPEC's latest estimate for its own output was 28.92 million bpd for June, compared with its new formal ceiling of 26 million bpd from August 1.

A Gulf industry source said on Tuesday that leading oil exporter Saudi Arabia might boost production close to 9.5 million bpd) in August, a 400,000 bpd rise on this month.

World oil demand in 2005 is projected to climb by 1.66 million bpd to 82.56 million bpd, up two percent, after unusually sharp growth of 2.1 million bpd, 2.7 percent this year, the OPEC report said.

Economic growth in key leading oil consumer the United States and also China, which has overtaken Japan as the world's second largest oil consumer, has shown signs of slowing, potentially reducing oil demand.

U.S. Federal Reserve chairman Alan Greenspan will later on Tuesday deliver the first leg of his two-day twice yearly monetary policy testimony to the Senate Banking Committee.

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