US Energy Dept says oil prices have peaked

World inventories of crude oil will rise in the near term, depressing prices, as long as the Organization of Petroleum Exporting Countries maintains or increases output, the U.S. Energy Department was quoted by Bloomberg as saying Monday.

If current production is maintained and excluding the effects of a possible war in Iraq or labor unrest in Venezuela, higher oil inventories will erode oil prices, the department said in its monthly Short-Term Energy Outlook. OPEC members meet Thursday in Vienna to review the cartel's production quotas.

OPEC members excluding Iraq continue to sidestep official output targets, and in November pumped an average 2.7 million barrels a day above quota, the department said. Still, by the end of last month world oil prices had risen to levels seen in late October on concerns over a disruption in Middle East supply from a possible war in Iraq, and the ongoing general strike in Venezuela.

``Demand for oil tends to decline in the first half of the year, once northern hemisphere heating is taken care of,'' said Tim Evans, senior energy analyst at IFR Pegasus, a New York-based research firm. ``If OPEC doesn't cut two million barrels a day from their production we are going to see a growing inventory.''

At current production levels, crude stocks in Organization of Economic Development and Cooperation countries should return to normal sometime next year, EIA said.

``As a result, world oil prices are believed to have peaked, on the basis of market fundamentals,'' the report from the department's Energy Information Administration said.

Heating Demand

U.S. demand for petroleum showed a ``strong'' increase in November from a year earlier, and estimates for December point to a 1.5 million barrel-a-day, year-on-year increase, one of the largest monthly gains on record, the department said.

Heating-degree days in the Northeast for October and November were 21 percent and 12 percent, respectively, higher than normal. The region has also seen colder-than-normal temperatures this month, in contrast to warmer weather in the same period last year.

Colder-than-normal temperatures so far this winter in the U.S. and signs of a recovery in industrial activity suggest that ``the long-awaited resumption of growth in total petroleum demand has begun,'' the report said.

Rising petroleum demand will lead to a slight increase in year-to-year growth of 100,000 barrels a day or 0.5 percent on year, EIA said. For 2003, the department expects petroleum demand to rise by 760,000 barrels a day, or 3.9 percent.

Gasoline demand is seen rising 3.2 percent in 2003, and jet- fuel demand is projected to increase by 4.5 percent.

``In contrast to 2002, all the major product groups are expected to experience substantial growth, which is expected to be distributed across the entire year,'' EIA said.(*)