Oil holds above $119

Oil prices were steady above $119 a barrel Wednesday as investors awaited weekly oil and gasoline inventory data for further evidence of declining crude demand in the U.S.

oil prices

Traders work in oil options pit at the New York Mercantile Exchange in New York, Wednesday, July 30, 2008. Oil prices rebounded slightly Wednesday, hovering above $123 a barrel, after the government reported that U.S. gasoline stockpiles fell unexpectedly last week while crude supplies dropped less than expected. Photo: AP

By midday in Europe, light, sweet crude for September delivery was up 36 cents to $119.53 a barrel in electronic trading on the New York Mercantile Exchange. The contract dropped $2.24 overnight to settle at $119.17 a barrel.

In London, September Brent crude rose 66 cents to $118.36 a barrel on the ICE Futures exchange.

Oil will probably drop further unless the U.S. Energy Department’s Energy Information Administration says in its weekly oil inventory report that gasoline stocks fell significantly, said Tetsu Emori, who manages a commodity markets fund at ASTMAX Futures Co. in Tokyo.

“If we don’t get a strong number, oil prices will likely fall further,” he said.

The EIA report on U.S. oil stocks for the week ended Aug. 1 was due out later in the day. The petroleum supply report was expected to show that gasoline stocks fell 1.4 million barrels, according to the average of analysts’ estimates in a survey by energy research firm Platts.

The Platts survey also showed that analysts projected crude oil inventories to have fallen 1.2 million barrels during last week.

The U.S. Federal Reserve in an economic assessment statement Tuesday said that along with tight credit and the housing contraction, “elevated energy prices are likely to weigh on economic growth over the next few quarters.”

The Fed statement accompanied its decision to keep its key interest rate unchanged at 2 percent. Slower economic growth in the world’s largest economy could lead to a significant drop in demand for oil.

“People are looking at the weaker demand,” Tetsu said. “I expect prices to fall to between $100 and $110 by the end of the year.”

Investors again shrugged off tension over Iran’s nuclear program. Iran’s response to an incentives package aimed at defusing a dispute over its enrichment of uranium is unacceptable, U.S. officials said Tuesday. Prospects of new sanctions against the country are now more likely.

The market seemed to be reacting less to potentially bullish factors such as the weather and geopolitical developments and instead was turning its attention to fundamentals, “in particular the rocky demand outlook in certain countries,” said analysts at JBC Energy in Vienna, Austria.

While Tropical Storm Edouard did not have any lasting effects on oil facilities on the U.S. Gulf Coast, the storm still led to lower oil and gas demand in that region. The storm ushered in cooler weather, ending a prolonged heat wave in states such as Texas and thereby cut electricity use (for air conditioning) where record demand had been forecast, JBC said.

The liquidation of long positions – futures bought on expectations that oil prices would continue to rise – also could undercut any rebounds, said Olivier Jakob of Petromatrix in Switzerland.

Nymex front-month crude futures have fallen about $28, or about 19 percent, since reaching a record high of $147.27 on July 11.

In other Nymex trading, heating oil futures rose 1.5 cents to $3.2970 a gallon (3.8 liters), while gasoline prices gained 1.41 cents to $2.9705 a gallon. Natural gas futures decreased 0.1 cent to $8.725 per 1,000 cubic feet.