- The Washington Times - Thursday, August 20, 2009

Oil prices surged nearly 5 percent Wednesday in New York trading after China’s demand for oil rose to a record and the U.S. government reported a surprisingly large drawdown in oil supplies.

The pickup in demand in the United States and China, the world’s two largest oil-consuming nations, came as a surprise as the markets recently have been absorbing disappointing news about the prospects for weaker growth in both countries.

The 4.7 percent jump in premium crude prices to $72.42 a barrel on the New York Mercantile Exchange added support to the U.S. stock market by sending energy stocks surging. The Dow Jones Industrial Average rose 61.22 points to close at 9,279.16 on the news.

“The recent robust Chinese oil demand growth rates seem counterintuitive, given that exports - the mainstay of the Asian giant’s economy - remained depressed in July,” said Vandana Hari, Asia news director at Platts, which reported that demand for oil in China surged 4.2 percent to a record 34.92 million metric tons last month after Chinese refineries stepped up purchases of crude oil.

“The continued rise in crude refining volumes is understandable because that puts more money into the pockets of the refiners under the government’s new products pricing formula,” she said. “But if end-user demand is not in sync, that simply translates to more oil moving into storage. Whether Chinese industrial activity is able to get fully back on track once Beijing’s massive fiscal stimulus runs out will hold the key to the country’s oil demand growth in the coming months.”

The drawdown of 8.4 million barrels in U.S. crude oil stocks reported by the Energy Department on Wednesday morning was the largest since May 2008, and also surprised markets. But analysts attributed it mostly to a drop in supplies of imported crude oil rather than a major uptick in demand.

Still, the development enabled the U.S. stock market to overcome morning losses and a downtrend in other stock markets around the world.

An increasing number of analysts attribute the steep rise in oil prices since March to a re-emergence of the kind of speculative boom in oil that sent premium crude prices to nearly $150 a barrel last year. The Commodity Futures Trading Commission is expected to issue a report soon on the role speculation played in recent run-ups in the price of oil.

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