Middle East tension lifts oil above $31 Market continues to pull support from tight supplies

By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:20 PM ET Aug 10, 2000 NewsWatch Latest headlines

NEW YORK (CBS.MW) - Oil shares were mixed Thursday and crude futures jumped above $31 a barrel after reports of tension in the Middle East compounded concerns over tight supplies.

On the New York Mercantile Exchange Wednesday, September crude rose 85 cents to $31.20 a barrel. It rose above $30 a barrel for the first time in three weeks just a day earlier.

September heating oil climbed 2.81 cents to 86.35 cents per gallon, and September unleaded gasoline added 4.3 cents to 92.50 cents per gallon.

In the equities market, the Philadelphia Oil Service Index ($OSX: news, msgs) fell 0.9 percent as shares of Baker Hughes (BHI: news, msgs) fell 1 3/8 to 37 3/8. The CBOE Oil Index ($OIX: news, msgs) climbed 1.3 percent as shares of Texaco (TX: news, msgs) added 1 1/16 to 50 13/16 in recent trading.

Kuwait has mobilized part of its army in response to threats made by Iraqi President Saddam Hussein, Bridge News reported, sparking market fears that the tension could affect oil exports from the two countries.

However, "the critical issue is the inventories," said Tim Evans, a senior energy analyst at New York-based IFR Pegasus.

Supplies are tight right now, but if inventories were at higher levels, Evans said, the Middle East tension wouldn't make as much of a difference because the market wouldn't likely see it as an immediate threat to supply.

The API said Tuesday that supplies of crude, as of the week ended Aug. 4, fell 2.1 million barrels to 282.6 million - near its lowest level since 1976 when it hit 282 million, according to Chicago brokerage Alaron.com. A week ago, the institute posted a 9-million-barrel decline in stocks.

Early Wednesday, the Energy Department reported a 1.3 million-barrel rise in crude stocks. However, total inventories at 285.4 million remained near the 24-year low of 282.8 million, according to Alaron.com.

The API and Energy Department also said last week's distillate and gasoline inventories declined. See full story.

"Not only was the data bullish relative to expectations, but it underscores that the prior data was no fluke," said Evans.

News of problems with the re-start of a gasoline processing unit at an ExxonMobil (XOM: news, msgs) refinery in Baton Rouge, La. also lent support to the oil market Thursday.

Natural gas barely changed following stocks data

Natural gas futures were mostly steady Thursday after the American Gas Association said last week's supplies rose on the high-end of expectations.

September natural gas added 5.6 cents to $4.475 per million British thermal units on Nymex.

Shortly before the market closed Wednesday, the AGA reported that supplies climbed 65 billion cubic feet - within analysts' expectations for a rise of 50 billion to 65 billion cubic feet, according to a Bridge survey.

http://cbs.marketwatch.com/archive/20000810/news/current/crude.htx?source=blq/yhoo&dist=yhoo

-- Cave Man (caves@are.us), August 10, 2000

Answers

Your appearance as usual at a temporary top signals its time to short across the board Oil and the derivatives. Nat. Gas will probably move on a BTU basis vs. Awl.

Where where you when everything was down last week?

Oil freaks make me laugh. They remind me of the Silly 70s.

-- cpr (buytexas@swbell.net), August 10, 2000.

FYI:

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Oil & Gas Journal Online's Washington Week

Wednesday, Aug. 9, 2000

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Natural gas crunch

Tighter US natural gas supplies, and the resulting higher prices, could create political problems for the next Congress -- and the gas industry.

Sen. Frank Murkowski (R-Alas.) recently held an Energy and Natural Resources Committee hearing on the outlook for US gas production. Referring to the Clinton administration's energy policies, Murkowski said, "We've put all our energy eggs in the natural gas basket, but we have not concentrated on producing more eggs."

The US Energy Information Administration predicts the nation's gas use will increase from 21 tcf/year now to nearly 30 tcf by 2015 and 32 tcf by 2020.

Shorter term, Murkowski predicted a public outcry over gas prices this winter -- greater than the one last winter in New England over home heating oil prices. "This winter we will hear from consumers throughout the US because natural gas is the number one heating fuel for more than half of all Americans."

Market interaction

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The American Petroleum Institute said natural gas interruptions this winter could spill over quickly into oil markets. In a statement for the committee's hearing record, it said, "Interruptible contract gas customers can generate a surge in distillate demand, directly competing with heating oil and trucking uses. Even without interruptions, high natural gas prices may encourage substitution of distillate in facilities with dual-fired capacity. Particularly if stocks of those oil products are also low, spikes in natural gas spot market prices can spread quickly to other markets.

"The prospects of continual tightness in oil markets through the year may leave the market vulnerable to a broad-based energy prices spike if an unusually warm summer prevents gas stocks from being delivered to winter storage, and severe winter weather results in interrupted or costly gas supplies. It is worth noting that the gas supply interruptions in New England that occurred last year occurred despite relatively high gas storage levels going into the winter season," API said.

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Oil & Gas Journal Online's Washington Week, a summary of US petroleum-related government and regulatory developments, is delivered electronically at no charge.

-- Cash (cash@andcarry.com), August 11, 2000.