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August 29, 2000

API Report Shows a Buildup in Oil Inventories By JENNIFER BARRETT NYTimes.com/TheStreet.com, 6:49 p.m.

After surging to a 10-year high in early trading Tuesday, heating oil prices may ease this week following new reports of a buildup in domestic inventories.

Swelling crude oil costs and shrinking supplies had pushed heating oil prices to their highest levels since the Persian Gulf War, as a wary market anticipated further draws on inventories ahead of the cold weather season.

But data released by the American Petroleum Institute after the close of trading Tuesday showed that crude oil and distillate stocks increased last week, though they remain far lower than a year ago.

According to the industry group's latest weekly report, crude oil stocks rose by 5.261 million barrels last week to 285.96 million. That's still lower than a year ago, when stocks were at 317.66 million barrels, but a big improvement from a week ago.

Distillate stocks, which include heating oil and diesel fuel, increased by 1.04 million barrels last week to 112.2 million. That's still down more than 20 percent from levels a year ago.

Industry analysts say it's been difficult to anticipate the weekly data, in part because there is no clear trend, and the government data released each Wednesday has not always confirmed -- in fact, at times it has contradicted -- the API figures.

"We've seen it several times -- small draws and no concerted movement in one direction or the other really," said Allan Brady, an associate economist who follows oil and gas for the business site Economy.com.

Still, he said the oil inventories are low enough to have him and others worried -- particularly this close to the fall season. "The crux of the matter is short supplies and poor capacity," Brady said. "We haven't seen the inventory building on the level we need to."

The heating oil contract for September delivery has been climbing steadily this month. It breached the $1-a-gallon mark Monday on the New York Mercantile Exchange, gaining more than 3 percent to trade at the highest level since late 1990.

After climbing above $1 a gallon again early Tuesday, the heating oil contract price slipped back to hover just 98.59 cents a gallon. Analysts blame low inventories of both crude oil and distillates for the recent price increases.

"That's the No. 1 factor driving higher heating oil prices," said Tancred Lidderdale, who tracks petroleum supply for the Department of Energy. "We're not expecting anyone to run out of heating oil or diesel, but we're concerned about price volatility."

The fear is that there may not be enough crude oil for U.S. refiners, who are already producing near capacity, to manufacture enough heating oil to meet demand in the coming colder months.

"So long as the weather stays mild, we're okay, but as soon as we get a cold snap, that changes," Brady of Economy.com. said.

That's a particular concern for the Northeastern states, which account for about two-thirds of the total use of U.S. distillates.

Analysts expect inventories to continue building up ahead of the winter months, while oil prices ease slightly from the current range in the low $30s. The October contract for crude oil crept above $33 a barrel Tuesday, before slipping back to end the day down 13 cents at $32.74. Oil prices have climbed about 20 percent this month.

The Organization of Petroleum Exporting Countries has informally agreed to increase output by 500,000 barrels a day if the basket of its crude stays above $28 a barrel for 20 days -- a very real possibility, considering the current prices.

The organization is unlikely to take action ahead of its next meeting, scheduled for Sept. 10 in Vienna. Many expect OPEC ministers to increase oil production by at least a half-million barrels a day at that meeting.

Still, analysts say that may be too little, too late, to make much of a difference. In fact, most of OPEC's 11 member countries are constrained by limited capacity. Only Saudi Arabia, Kuwait and the United Arab Emirates are believed to be capable of further production increases.

http://www.nytimes.com/yr/mo/day/news/financial/29tsc-energy.html

-- Martin Thompson (mthom1927@aol.com), August 29, 2000