Updated from 2:50 p.m. EDT
Crude oil prices tumbled towards $51 a barrel Wednesday, beaten down by President Bush's commitment to achieve more U.S. self reliance in energy production and by bearish inventory data showing a surge in crude stocks.
The June crude benchmark closed down $2.59 to $51.61 in Nymex floor trading. Gasoline crashed down about 8 cents to $1.541 a gallon.
In a speech before the Small Business Administration, President George W. Bush stressed his commitment to increasing local production of energy in the U.S. Bush reiterated the need to pass an energy bill that would ease many regulatory restrictions to better accommodate the building of new refineries, liquefied natural gas terminals and for drilling in the Alaska National Wildlife Refuge. He also lauded the merits of nuclear energy and stressed the importance of conservation efforts.
Bush said that over the past decade demand for oil in the U.S. increased by 12%, while local production increased by half a percent, which means the excess oil came almost solely from imports.
"We must be less dependent on foreign energy... foreign dependence is like a foreign tax on U.S. consumers," Bush said.
Also dampening prices was an Energy Department report showing a 5.5 million barrel jump in crude inventories. That's the 10th increase in 11 weeks and much higher than the 400,000-barrel increase analysts were estimating. The increase follows last week's one-time 1.8 million drop in oil inventories. Gasoline inventories fell by 300,000 barrels, a much smaller drop than the expected 700,000-barrel decline.
Crude inventories in the U.S. are currently at 324.4 million barrels, as imports averaged about 10.9 million barrels per day, up more than 1.1 million barrels from the previous week, the third-highest weekly average on record.
"These are very bearish numbers," says Jim Williams, energy economist at WTRG Economics. "It looks like we have sufficient supplies." But Williams adds that crude prices are still high because there are still long-term concerns over any disruption of oil supply, such as a strike or terror attack. "We still need to have 5% in excess capacity, more slack," in order for prices to come down and concerns to ease, he says.
Crude's midday fall accelerated as President Bush delivered a just-completed speech about the need for comprehensive energy policy as well as more conservation efforts.
On Tuesday, Saudi Arabia reiterated its intentions to increase production to meet demand. Saudi Arabia Crown Prince Abdullah's aide Adel al-Jubeir warned that high oil prices are starting to slow the global economy, and that "$50 a barrel is way too high," in an interview on
. Saudi Arabia is prepared to sell oil to "whoever wants it," he said.
With OPEC pumping crude as much as they can and U.S. inventories maintaining their highest levels in three years, some say supply has finally caught up with demand.
Thorsten Fischer, senior economist at Economy.com, and an energy market bear, looks at other data, such as the all-time high in global rig count and an increase in value of new field equipment, as indicative of the boost in companies' production. "Companies have stepped up their activity in exploration and production, which has materialized in new production flowing into the markets," Thorsten says. High oil prices have spurred more investments, which are now returning into the market to eventually ease prices, he estimates.
Some companies, however, haven't profited as much as others from higher oil prices.
said its first-quarter earnings fell by 22% because of lower revenue from refining and marketing. Other than major downtime in some refineries, the company also had lower gasoline retail margins, which means it was more difficult to charge higher prices at the pump. Refining and marketing earnings were $63 million in the first quarter of 2005, compared with $112 million in the first quarter of 2004.
Energy stocks were lower Wednesday, led by declines in
, which was recently down 3% despite reporting better-than-expected earnings Tuesday evening, and shares of oil service names such as
, down 4% and
( RD), off 2.2%.
, said first-quarter earnings climbed on high oil prices, but were partially offset by unplanned downtime in the company's exploration and production unit. Net income increased to $2.91 billion, or $4.10 per share, on revenue of $38.9 billion, from $1.62 billion, or $2.33 per share, on revenue of $30.2 billion a year ago. That beat analysts' earnings estimate of $3.29 per share, according to Thomson Financial.
The company said it would have reported higher earnings had there not been unplanned downtime in production facilities. It also estimated that second- quarter earnings would be lower due to maintenance and more downtime. Shares were recently down 1.9%.
The Amex Oil Index was recently down 2.2%, and the Philadelphia Oil Service Sector Index fell about 3%.
Shares of major oil producers were mostly down in conjunction with falling oil prices.
dropped 3%; and