Overpriced Oil is up again

VIENNA, Austria -- Oil prices rose Wednesday amid expectations a U.S. government report will show crude oil stockpiles fell last week.

Prices were also supported by fears of broadened violence in Nigeria, the world's eighth-largest oil producer

Analysts surveyed by Dow Jones Newswires predict crude inventories likely fell 800,000 barrels last week, while supplies of distillates, which include heating oil, likely fell 300,000 barrels. The U.S. Energy Department's Energy Information Administration will release the report later Wednesday.

"That would be the eighth consecutive week of crude oil stock draws and U.S. crude oil inventories are already below the five year average for this time of the year," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Light, sweet crude for February delivery added 70 cents to $97.03 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange. The contract rose $1.24 to settle at $96.33 a barrel on Tuesday. Oil was also being supported by a surge in the price of gold, analysts said. Gold futures surged above $880 an ounce Tuesday to their highest level ever, not accounting for inflation.

"Part of the recovery of oil yesterday and this morning is due to fresh investor funds coming into oil and commodities," Shum said.

Reports that Nigerian militants are planning attacks on the nation's oil facilities were also sending prices higher. In a research note, Vienna's PVM Oil Associates noted that the country had "already lost some 15 percent of crude output capacity" due to violence. Still it forecast increased production of around 2.35 million barrels a day for this year, up from last month's 2.22-million barrel daily output.

A monthly EIA report Tuesday predicted oil supplies will be tight this year but ease in 2009. The EIA slightly raised global oil consumption growth forecasts, and said the Organization of Petroleum Exporting Countries will likely supply nearly a million more barrels of oil per day this year than previously expected.

The EIA predicted oil prices will average $87 a barrel this year, up from a previous estimate of $85. The average price will then fall to $82 a barrel in 2009, it said.

In London, February Brent crude rose 59 cents to $96.13 a barrel on the ICE Futures exchange.

Heating oil futures rose by nearly 2 cents to $2.6549 a gallon (3.8 liters) while gasoline prices gained close to a penny to fetch $2.4830 a gallon. Natural gas prices added 6 cents, selling at $8.027 per 1,000 cubic feet.

Longer term projections for the direction of oil prices remain bearish, however. On Wednesday, the World Bank became the latest institution to predict that prices will likely decline gradually this year and next as crude demand weakens in the face of record prices.

"If you look at the fundamentals, there is scope for lower oil prices," said Hans Timmer, co-author of the bank's annual "Global Economic Prospects" report, at its launch in Singapore. "We forecast more or less a sustained, gradual decline."

A barrel of light, sweet crude surpassed $100 a barrel on the New York Mercantile Exchange for the first time last week.

The World Bank's report predicts that a barrel of crude oil will cost $84.10 on average this year and fall by 6.8 percent to $78.40 a barrel in 2009. It estimates that the average price of crude oil last year was $71.20 a barrel.

The forecasts are based an average of three benchmark oil prices: Dubai, Brent and West Texas Intermediate.

As demand wanes, OPEC countries have had to reduce their production by a million barrels over the last three quarters to a year to keep prices high, the economist said.