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Boomberg: Crude Oil Falls as U.S. Inventories Gain More Than Expected
By Kapal Berita

5/10/2000 10:44 am Thu

Top Financial News
Wed, 04 Oct 2000, 4:21am EDT

Crude Oil Falls as U.S. Inventories Gain More Than Expected By Stephen Wisenthal

Singapore, Oct. 4 (Bloomberg) -- Crude oil fell as U.S. inventory figures rose more than expected, easing concern about shortages with the Northern Hemisphere winter about to start.

Stocks of crude oil in the U.S. rose 1.2 percent, double analysts expectations, the American Petroleum Institute said in a weekly report late Tuesday. U.S. distillate fuel inventories, which include heating oil and diesel, also rose, with the deficit from a year ago narrowing to 20 percent from 21 percent.

``Those are huge numbers for crude'' and it's surprising the market didn't fall more, said Mario Chavez, a futures broker at ED&F Man International Ltd. in New York.

Crude oil for November delivery fell as much as 33 cents, or 1 percent, to $31.74 in after-hours electronic trading on the New York Mercantile Exchange. During floor trading before the API report, the price was little changed, losing 0.3 percent after gaining 4.4 percent Monday on concern about low heating oil supplies.

Traders said prices are set to fall further as more oil is on its way.

Oil prices are likely to drop to about $25 a barrel by the end of the year, as oil from an OPEC quota increase of 800,000 barrels from Oct. 1 starts reaching markets in Europe and the U.S., said David Johnson, an oil analyst at Chase JF in Hong Kong.

The alarm over heating oil supplies in the U.S. ``is like the great gasoline shortage of June-July -- it just disappeared and the oil price shot down to 25 bucks. I think there'll be enough oil to see us through the winter.''

Prices are down 15 percent from a 10-year high of $37.80 on Sept. 20, two days before U.S. President Bill Clinton ordered the release of oil from national reserves to help bolster refinery supplies.


Clinton's move and additional oil from the Organization of Petroleum Exporting Countries followed earlier declines in stockpiles of oil and heating fuel, adding volatility to the market.

The closing price in New York has moved more than $1 a barrel in five of the past nine floor trading sessions on the Nymex.

``It's crazy this market,'' said Chavez. ``People have been getting pretty banged up money-wise.''

After floor trading ended, the API said U.S. crude oil inventories rose 3.42 million barrels, or 1.2 percent, to 287.76 million barrels.

Heating oil stockpiles rose 300,000 barrels to 47.7 million in the week ended Sept. 29, narrowing the year-on-year gap to 35 percent from 36 percent. Still, supplies fell along the U.S. East Coast, the biggest market for heating oil.

``Inventories of heating oil remain low and we would need to see'' an increase of 2 million barrels along the East Coast for prices to fall, said Kyle Cooper, an analyst with Salomon Smith Barney in Houston.

U.S. inventories of distillates rose last week, as expected. Distillate supplies rose 336,000 barrels to 116.5 million, at the low end of analyst expectations in a Bloomberg survey.

U.S. refineries, which have been running close to capacity all year, operated at 94.4 percent capacity, unchanged from the previous week.

The shortfall in heating oil supplies may signal that retail suppliers are purchasing the fuel from refiners now to avoid possible shortages when the cold weather sets in, traders said.

``We still view heating oil as overpriced,'' said Aaron Kildow, an energy analyst at Prudential Securities in New York.

``Not only are distributors stocking up early but also apartment buildings and other end users. The cold weather will come and everyone will have what they need.''

Heating Oil

Heating oil for November delivery fell as much as 0.60 cents, or 0.6 percent, to 95.75 cents a gallon in after-hours trading on the Nymex. In floor trading, it rose 0.3 cents. Prices are down 10 percent from a 10-year high of $1.076 on Sept. 12, when concern about short supplies intensified.

Supplies of heating oil are also tight in Europe, but excess refining capacity in Asia has ensured families in Japan, the world's second-largest economy, won't have trouble getting fuel to heat their homes this winter, said Tsutomu Toichi, director at Japan's Institute of Energy Economics, Japan.

``Refiners are cutting back on output, but they can make more if they want, unlike U.S. refiners.''

Japanese refiners, importers, distributors and retailers had a combined 79 days worth of crude and oil products stockpiled at the end of July, 2 days less than a year earlier. The decline reflects efforts by refiners to curb inventories and reduce the cost of borrowing from banks to buy crude oil.

The stockpile compares with the 70-day supply mandated by the government, which itself holds reserves sufficient to meet 84 days of consumption.

World oil prices are influenced too much by regional issues in the northeast U.S., where the New York traders live, said Chase JF's Johnson.

``If the Nymex traders get snow on their shoes on the way to work then they put the oil price up a dollar,'' he said.