Heating Oil Rises to a 10-Year High on Supply Concern

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Mon, 28 Aug 2000, 10:16pm EDT Heating Oil Rises to a 10-Year High on Supply Concern By Mark Shenk

New York, Aug. 28 (Bloomberg) -- Heating oil surged to a 10- year high on concern that U.S. refiners won't be able to make enough of the fuel before demand picks up during the cold weather months.

U.S. inventories are down 39 percent from a year ago just a few months before the winter heating season begins. Heating oil supplies are low partly as refiners concentrated on making gasoline, which from February until last week fetched higher prices.

Unless heating oil supplies rise faster, ``we are looking at an energy crisis this winter,'' said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York.

Heating oil for September delivery rose 2.94 cents, or 3 percent, to 99.88 cents a gallon on the New York Mercantile Exchange, the highest closing price since October 1990. Prices rose as high as $1.002 during the trading session, a 10-year intraday high. Prices were last at this level when Iraq's invasion of Kuwait touched off the Persian Gulf War and caused concern that Middle East crude oil supplies might be disrupted.

The U.S. Energy Department already has warned that consumers in the Northeast may face surging prices this winter just as they did last winter, when retail heating oil rose above $2 a gallon during a cold snap. The department has created a 2 million-barrel reserve in the Northeast to help avoid shortages if there's another spell of cold weather.

Worried About Winter

``In the current atmosphere `up' is the new `sideways,''' said Chris Schachte, an energy analyst at GSC Energy Corp. in Atlanta. ``When there is no news and the market is slow, prices rise,'' he said. ``Everyone is so worried about the winter.''

The National Weather Service said in a forecast on Aug. 17 that the temperatures in most of the country would be above normal from December through February. Such forecasts are often revised extensively as the period approaches.

Heating oil futures last week became more expensive than gasoline for the first time since last winter. Gasoline prices that peaked at $1.088 a gallon on June 16 have since fallen 10 percent since then.

Gasoline for September delivery rose 2.36 cents, or 2.5 percent, to 97.77 a gallon on the Nymex. Gasoline and heating oil futures represent wholesale prices. Refiners have been concentrating on gasoline during the vacation driving season, when demand peaks.

Crude Oil Gains

``U.S. refiners find it easier to produce heating oil than reformulated gasoline but they still need enough time to make it,'' said Phil Flynn, vice president and senior market analyst at Alaron Trading Corp. in Chicago. ``Traders have visions of what happened during the cold snap last winter.''

Crude oil for October delivery rose 84 cents, or 2.6 percent, to $32.87 a barrel on the Nymex. Oil prices are up 20 percent this month. In London, the International Petroleum Exchange was closed for a national holiday.

U.S. crude oil inventories unexpectedly plunged 2.7 percent, or 7.77 million barrels, to 279.71 million barrels, the American Petroleum Institute said last week, leaving supplies close to a 24- year low of 279.0 million reached in early August.

Low oil inventories might make it difficult for refiners to make enough heating oil to meet demand in the months ahead, traders said. To be sure, some local dealers may already have begun filling their tanks, draining national supplies earlier than usual and skewing the API figures.

``We are seeing secondary users stock up earlier than in previous years,'' said Aaron Kildow, an energy analyst at Prudential Securities in New York. Even at current prices, local heating oil retailers are doing better buying now than if they you wait until December, if prices rise as many expect, he said.

OPEC Oil

Venezuelan President Hugo Chavez urged fellow members of the Organization of Petroleum Exporting Countries to resist U.S. and European pressure to boost oil output and lower prices, Algeria's official press agency reported.

U.S. President Bill Clinton wants OPEC to lower prices by about 25 percent, and European Union officials argue current prices have contributed to rising costs and threaten world economic growth.

The debate over production is causing divisions within the 11- member group two weeks before it's next meeting on Sept. 10. Saudi Arabia, OPEC's biggest producer, has called for action to cut prices, while Algeria, Iran and Venezuela -- countries that analysts estimate have little or no capacity to boost output -- have opposed increasing production.

``Even if OPEC raises production, it will not get here in time to help'' heating oil inventories, said Michael Fitzpatrick, a trader at Fimat USA Inc. in New York. ``If there is a cold snap, prices could skyrocket.''

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=blk&bt=blk&s=AOarKsRIfSGVhdGlu

-- Martin Thompson (mthom1927@aol.com), August 28, 2000


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