Crude oil prices saw some weakness mid-week but recovered on Thursday and are consolidating moderately below the 2-1/2 month high of $80.82 posted on June 21. Gasoline prices have traded mildly lower during the past week but remain in the upper half of their 2-month trading range. Crude oil received a boost during the week from the fairly sharp sell-off in the dollar to a new 3-month low and from a slightly improved view of the Chinese economy. In addition, Chinese officials told IMF officials that the inflation outlook is benign and they are in no hurry to raise interest rates, which bodes well for continued strong fuel demand from China. However, overhead pressure on crude oil prices continues from generally bearish supply fundamentals. The latest DOE report indicated that crude oil inventories rose sharply by 7.308 million bbl (2.1%), which was much stronger than the market consensus for a decline of 1.7 million bbl. Gasoline inventories were little changed while distillate inventories rose by 0.6%. Inventories remain well above their respective 5-year seasonal averages by 6.7% for crude oil, 4.3% for gasoline, and 19.5% for distillates.

Fundamental Outlook-Range Trading-Crude oil prices are trading sideways near the middle of their 11-month $20 a barrel range. Crude oil prices continue to see overhead pressure from signs of a global economic soft spot, rising OPEC production, and above-average US crude oil and product inventories. However, the longer-term trend for crude oil prices remains bullish as the global economy retains upward momentum and as the BP oil spill highlights the difficulty the oil industry will have in economically developing reserves and meeting demand in coming years.

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