Oil Hovers Above $63 a Barrel

Concerns linger about the strength of demand in the U.S.
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Updated from 12:17 p.m. EDT

Crude futures held above $63 a barrel Thursday as traders continued to ponder the impact of inflation on the U.S. economy.

The September crude contract, which took a 4% hit Wednesday, closed up 2 cents to $63.27 a barrel on Nymex. Gasoline futures fell 3 cents to $1.86 a gallon.

A higher-than-expected U.S. producer price index weighed on oil prices Wednesday as concerns grew that an economic slowdown will reduce oil consumption. Prices defied a bullish inventory report showing a 5 million-barrel decline in gasoline stocks.

Data showing a drop in fuel demand in the U.S. also spurred selling Wednesday. The American Petroleum Institute (API), an industry group representing oil and gas companies, said in a monthly report that total domestic petroleum deliveries dropped 3% in July, the largest year-over-year drop in more than three years.

"This means high fuel prices have started to make a difference," said John Felmy, economist at API. "Consumer behavior is shifting. People are thinking twice before driving to the store for a bottle of milk, and if they have two cars, they will drive the more fuel efficient one more often."

A refinery glitch in a 450,000 barrel-a-day refinery in Venezuela, which, according to a

Bloomberg

report, was hit by lightning, helped stem oil's decline.

Meanwhile, Goldman Sachs, which previously opined that certain extreme circumstances could take oil above $100 a barrel, raised its long-term U.S. crude price forecast by $15 a barrel to $60 on Thursday. The Investment Bank's commodities research team said that "the rise in long-dated prices has resulted in part from the rising marginal costs of production now that most of the excess oil capacity in the world had been depleted."

Goldman Sachs, which operates an extremely profitable commodity trading operation, also predicted that growth in global demand will revive in the second half of 2005. "A combination of stronger demand on improved economic growth and a string of supply disruptions will likely reverse much of the oil inventory build accumulated during the first half."

In Ecuador, the president declared a state of emergency after protests against foreign oil companies prompted a military response. Raymond James reported that armed forces are guarding oil infrastructure, shutting down nearly 90% of production.

Ecuador produces roughly 200,000 barrels a day.

Two companies exposed to local protests in that region are

EnCana

(ECA) - Get Report

and

Occidental Petroleum

(OXY) - Get Report

.

In company news, the independent exploration and production company

Bill Barrett

(BBG)

priced a secondary offering of 5.5 million shares of its common stock at $30.25 per share. The selling stockholders will receive all the proceeds from the sale. The company shares fell Thursday 51 cents, or 1.7%, to $29.78.

Enterra Energy

(EENC)

, a Calgary-based exploration and production company, has completed the previously announced acquisition of High Point Resources. Shareholders of High Point will receive, in exchange for each common share held, either 0.105 of a trust unit of Enterra, 0.105 of an exchangeable share of a subsidiary of Enterra, or a combination of both. Shares rose 53 cents, or 2.7%, to $20.47.

Shares of the major oil producers were lower.

Exxon Mobil

(XOM) - Get Report

dropped 0.6%,

ConocoPhillips

(COP) - Get Report

lost 1.7%,

BP

(BP) - Get Report

fell 1.5%,

Chevron

(CVX) - Get Report

dropped 1.3% and

Royal Dutch Shell

(RD)

lost 0.03%.

The

iShares S&P Global Energy Sector

(IXC) - Get Report

fund has dropped more than 6% in the last week as oil prices eased from a record high of $67 a barrel. The

Energy Select Sector SPDR

(XLE) - Get Report

lost 5.8% over the same time period.