Oil Rises as U.S. Heating Oil Supplies Lower Than Expected

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Some people here just don't get it. It doesn't matter how much OPEC pumps, or how much Clintoon releases from the SPR, if the refineries can't supply the end product.

Anyone care to guess how long before we see oil going for $37, or more, again?


Tue, 26 Sep 2000, 10:15pm EDT

Singapore, Sept. 27 (Bloomberg) -- Oil prices rose after the latest U.S. inventory figures fell short of expectations, increasing concern refineries won't make enough heating oil for the northern hemisphere winter beginning in a month.

Heating oil stocks rose 0.7 percent, though the shortfall compared with year-ago levels widened to 36 percent from 35 percent, the American Petroleum Institute said. In the northeast, the main area for heating oil demand, inventories are currently 23.9 million barrels, less than the 35.5 million barrels drawn down between mid-October and late April last winter.

``Inventories for heating oil are not going to be at a level that provides a lot of comfort,'' said Kyle Cooper, an analyst with Salomon Smith Barney in Houston. ``Refineries are running at a very high level of utilization. The market is extremely skittish.''

Crude oil for November delivery rose as much as 37 cents, or 1.2 percent, to $31.87 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Earlier, in floor trading, it fell 7 cents. Prices are down 16 percent from a 10-year high of $37.80 last Wednesday.

The API figures, released after floor trading ended, showed U.S. distillate fuel inventories, which include heating oil and diesel, fell 761,000 barrels, or 0.7 percent, to 116.20 million barrels. Heating oil supplies rose and diesel fell. Analysts surveyed before the report had expected an overall increase in distillates of between 1.1 million and 1.5 million barrels.

Gap Widens

The decline left distillate supplies 21 percent lower than a year earlier, with only weeks to go before the start of the winter heating season, when demand peaks. That was wider than the 19 percent year-on-year deficit a week earlier.

Heating oil for October delivery rose as much as 1.01 cents, or 1.1 percent, to 94.00 cents a gallon in after-hours Nymex trading. During floor trading, it fell for a sixth session, declining 1.08 cents, or 1.2 percent. Prices are down from a 10- year high of $1.076 on Sept. 12, when concern about short supplies this winter intensified.

``The product problem will continue until the spread between crude and product prices widens further,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons Inc. in St. Louis. ``Obviously U.S. refiners can't make more, but it might lure Russian, European and even Asian refiners to send product here.''

U.S. refineries are running at 94.4 percent of normal capacity, the API said. They have been running at close to full capacity for most of the year, and many skipped scheduled maintenance to take advantage of record-high gasoline prices during the summer.

Now, with heating oil prices close to 10-year highs, and pressure from the U.S. government to rebuild stocks in time for winter, ``they're beginning to delay the maintenance schedules again,'' said Salomon's Cooper.

Gumming Up

This poses a risk, as impurities from the fuel accumulate, and are baked onto the valves and other parts of the refineries, he said.

``You have a problem with all those leftover components (of the oil) gumming things up and possibly causing an explosion or fire,'' he said.

Prices of heating oil and other products in the U.S., the world's largest consumer and importer of oil, influence crude oil prices around the world.

Oil prices have fallen in recent days after U.S. President Bill Clinton said the government would offer 30 million barrels from its Strategic Petroleum Reserve to boost low inventories. U.S. crude oil supplies fell to a 24-year low in August.

The U.S. decision to release reserves may lessen the chance the Organization of Petroleum Exporting Countries will raise output further, after it agreed this month to its third quota increase of the year, analysts said.

European Union finance ministers will discuss a similar release from their reserves when they meet Friday.

In Japan, kerosene heating fuel has gained 37 percent so far in 2000. Kerosene for November delivery rose as much as 300 yen, or 0.9 percent, to 33,010 yen a kiloliter on the Tokyo Commodity Exchange.

-- (here_we@go.again), September 26, 2000


It doesn't matter how much OPEC pumps, or how much Clintoon releases from the SPR, if the refineries can't supply the end product.

Not to mention the fact that demand for petroleum continues to grow worldwide every year but new discoveries aren't keeping up with that growth:

Barrels consumed globally per year: more than 22 billion in 1999. (About 2 billion barrels per month) http://www.hub bertpeak.com/campbell/commons.htm

Barrels discovered globally per year: about 6 billion. Discovery of oil fluctuates each year, but peaked in the 1960s, and has declined at an average of about 9 billion barrels per year over the past 40 years. Weve mostly just been using up huge old oil fields. http://www.pet roconsultants.com/products/ep.html

-- homo-extinctus (homo-extinctus@xox.xox), September 27, 2000.

Neat source. Look at their Y2k page and ask your self how credible they are.


-- cpr (buytexas@swbell.net), September 29, 2000.

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