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Oil Eases as Emily Shifts

A weekly report on energy inventories is roughly in line with estimates.

Updated from 2:32 p.m. EDT

Crude prices eased Wednesday as a bearish report on worldwide crude demand overshadowed concerns about Tropical Storm Emily. The Energy Department's inventory report was broadly in line with expectations.

The August crude contract closed down 61 cents to $60.01 a barrel on Nymex. Gasoline futures fell 2 cents to $1.75 a gallon.

Earlier, reports that Emily was gaining strength and moving west in the Caribbean injected fear into an already-tight market. Tuesday's evidence of Hurricane Dennis' damage at


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tilting Thunder Horse platform provided a stark backdrop.

Updated forecasts had Emily missing most U.S. oil and gas infrastructure, although the storm was still days away from landfall and could change course.

Meanwhile, the International Energy Agency, a private energy industry watchdog, released its monthly report Wednesday, revising down its previous 2005 oil demand growth forecast by 200,000 barrels to 1.58 million barrels a day. It cited a weaker outlook for China and the U.S. In 2004, oil demand grew by 2.7 million barrels a day, according to the agency.

The bearish demand forecast for 2005, however, was offset by a more bullish estimate of growth in 2006, indicating that Chinese demand growth will pick up by 460,000 barrel a day next year.

The IEA expects an average demand of 84.1 million barrel a day in 2005, which is about equal to the world's production. Under such conditions, spare capacity is extremely limited. In the fourth quarter, the group believes crude demand will reach about 86 million barrels a day, a level that would require OPEC to supply about 29 million barrels a day, according to analysts' models.

Despite postponing talks on an additional production increase to September, OPEC is already producing well above its formal quota of 28 million barrels a day.

The agency also said an "unusually active start to the hurricane season" has helped oil prices breach $60 a barrel.

Meanwhile, in its weekly update, the Energy Department said crude inventories fell by 3.9 million barrels last week, while gasoline stocks fell by 2.7 million barrels and distillate stocks were up 3.2 million barrels. Analysts called the direction of all three moves, although their estimates of the magnitude were low.

Both gasoline and distillate production fell significantly during the week ended July 8, as refineries operated at 96.2% of their capacity, down about 2 percentage points from the previous week.

In company news, a reshuffling in the S&P indexes gave a boost to

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Shares of

Frontier Oil


fell for the third day despite expectations for strong second-quarter earnings, after it was cut to hold from a buy at Deutsche bank on Monday. The analysts said in a note that while they expect a record quarter for Frontier, "shares still look expensive."

The Deutsche Bank analysts also mentioned that the shares sport a takeover premium because of


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acquisition of



. He said no deal looks imminent for Frontier. Shares of Frontier Oil lost $1.30, or 4.2%, to $29.50 Wednesday, and are down about 11% since Monday.

According to wire reports,


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is sweetening its bid for



by adding $2.5 billion in a separate account to be paid to Unocal shareholders if the deal doesn't close. CNOOC will present the new proposal to Unocal's board on Thursday, the report said.

Among the major oil producers, shares were mixed in Wednesday trading.

Exxon Mobil

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fell 0.2%,


(CVX) - Get Chevron Corporation Report

dropped 0.2%,


(COP) - Get ConocoPhillips Report

added 0.4%,

Royal Dutch/Shell


fell 0.7%, and BP lost 0.2%.