Euro oil product prices rise for fear of Y2K bug

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If consumers did this, some would call it "over-reaction":

http://infoseek.go.com/Content?arn=a1082LBY836reulb-19990818&qt=%22year+2000%22+bug*+glitch*+y2k&sv=IS&lk=noframes&col=NX&kt=A&ak=news1486

-- Linkmeister (link@librarian.edu), August 18, 1999

Answers

[Fair Use: For Educational/Research Purposes Only]

Euro oil product prices rise for fear of Y2K bug

08:52 a.m. Aug 18, 1999 Eastern

By Ang Bee Lin

LONDON, Aug 17 (Reuters) - Signs of concern over the possible impact of the millennium bug on oil supplies are starting to show up clearly in European petroleum product prices, traders said on Wednesday.

The dealers said that a recent increase in prices for petroleum product futures and cash derivatives for late 1999 was due in part to worries computer breakdowns at the New Year 2000 changeover, or Y2K.

They said buyers increasingly were locking in positions on the European oil market to hedge against the possibility of consumer petroleum product hoarding.

``Companies usually destock at the end of the year for tax purposes but currently we see traders buying up on swaps and physical oil,'' said a diesel trader with a major European refiner.

The impact is being felt primarily in the European heating oil and diesel market because household consumers can most easily hoard stocks.

Fourth quarter and December oil swaps have shown sharp increases in prices with premiums for December diesel and jet fuel swaps rising several dollars a tonne in recent weeks. December diesel swaps recently have moved to a premium as high as $18 a tonne over benchmark gas oil futures prices compared to a $10 premium seen early this year.

Diesel prices also were higher because of a change in European Union specifications at the end of the year, dealers said.

Driven mainly by the rise in oil prices worldwide, spot European heating oil has jumped from $113 a tonne cif NWE at the end of May to $172 a tonne on Tuesday.

``There are absolutely no sellers for December paper but plenty of buyers and bids have moved up significantly in the last two months,'' said one oil broker based in London.

In addition London IPE gas oil futures have seen bigger gains in recent weeks for the December and January contracts than for other months.

``Traders are buying December gas oil, which expires on December 10, so they can have product to hand if necessary,'' said a London futures broker.

While there is no sign yet of panic buying some dealers are accumulating positions to take advantage of any growing fears of a shortfall in supplies. One U.S. bank has taken a particularly large position, betting that price differentials will rise.

``There are definitely traders who are taking advantage of the market's millennium fears to try to squeeze the market,'' said another broker.

The lack of sellers for December diesel derivatives has nudged potential buyers to purchase fourth quarter swaps and sell their October and November positions.

The swap play has resulted in a large differential between October and December swap premiums.

Earlier in August the World Bank said it expected global oil prices could rise significantly because of stockpiling at the end of the year.

``Governments are already recommending that oil companies fill their tanks,'' said an intergovernmental agency energy official on Wednesday.

``Everybody recognises that there could be a problem but nobody seems to know how big the problem might be,'' he added.

The millennium bug problem arises because many older computers record dates using only the last two digits of the year. If left uncorrected, systems could read the year 2000 as 1900, generating errors or system crashes. ((London Newsroom +44-171-542-7714, london.energy.desk+reuters.com))

Copyright 1999 Reuters Limited. All rights reserved.

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-- Linkmeister (link@librarian.edu), August 18, 1999.


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