Crude Oil Rises as Supply Boost Seen Leaving Heating Oil Short By Stephen Wisenthal

Singapore, Sept. 26 (Bloomberg) -- Crude oil rose as traders bet heating oil supplies will remain tight as the northern hemisphere winter bites in about a month.

Increased OPEC output and the release of emergency reserves by the U.S. won't be enough to rebuild fuel inventories before temperatures start to fall, said Gordon Kwan, an oil and gas analyst at HSBC Securities (Asia) Ltd. in Hong Kong.

``The trend for oil in the next two to three months will still be up rather than down,'' he said. ``At the end of November we could have prices in the high 30's. It depends on the severity of the winter.''

Crude oil for November delivery rose as much as 23 cents, or 0.7 percent, to $31.80, in after-hours electronic trading on the New York Mercantile Exchange. During floor trading, it fell 3.4 percent to $31.57 a barrel, the lowest closing price since Aug. 22. Oil last week reached a 10-year high of $37.80 a barrel.

Analysts said oil supply is not the only issue; refineries in the U.S. have limited capacity to process oil into heating fuel. Refineries are trying to rebuild stocks of heating oil, which fell as they produced more gasoline for longer than usual in the summer driving season to take advantage of high prices.

Shutdowns?

Refineries also delayed maintenance shutdowns, choosing to keep pumping out gasoline as the price rose to a record average of $1.681 during the week ended June 19, and remained near that level.

There are around 400,000 barrels of daily refining capacity that need to shut for maintenance around now, even as heating oil stocks remain low, said Gordon Ramsay, an oil and gas analyst at Salomon Smith Barney in Melbourne.

``The level of maintenance is higher this winter than it has been in the past,'' he said. ``These guys just didn't do the work this spring.''

With U.S. refineries operating at more than 93 percent of capacity, any maintenance shutdowns will hinder efforts to build heating oil stockpiles.

Heating oil for October delivery in the U.S. rose as much as 0.93 cents, or 1 percent, to 94.5 cents a gallon in after-hours trading on the Nymex. It fell 1.5 percent during floor trading. Prices are up 37 percent this year, and inventories are 35 percent lower than a year ago.

In Japan, kerosene heating fuel has gained 43 percent so far in 2000. Kerosene for November delivery rose as much as 500 yen, or 1.6 percent, to 32,560 yen a kiloliter on the Tokyo Commodity Exchange.

Crude Stocks

Crude oil fell from its peak last Wednesday, as traders anticipated, then reacted to the release of oil from U.S. emergency reserves. U.S. President Bill Clinton on Friday ordered the release of 30 million barrels, the largest shipment of crude oil from U.S. stockpiles since January 1991, during the Persian Gulf War.

``There are low inventories of crude because prices are so high -- no one will carry excess supplies at these prices,'' said William Greehey, chief executive of San Antonio-based Valero Energy Corp. the second-biggest independent U.S. refiner.

The U.S. decision to release reserves may lessen the chance of OPEC raising output further, after the producer group this month agreed to a quota increase of 800,000 barrels a day, or 3.2 percent, starting on Oct. 1, analysts said.

OPEC heads of state meet in Caracas this week to mark the 40th anniversary of the organization. Venezuelan President Hugo Chavez has billed the summit, the second in OPEC's history, as a means of increasing the group's power to stand up to wealthy oil- consuming nations like the U.S., which seek cheaper oil.

OPEC President Ali Rodriguez said releasing oil from the Strategic Petroleum Reserve would have a ``temporary'' effect on reducing prices. Rising oil prices were due largely to scarce U.S. refining capacity, not oil shortages, he said.

Rodriguez has said OPEC would boost output by 500,000 barrels a day if the price of a collection of crude oils it monitors stayed above $28. The price fell to $29.76 on Friday from $31.25 Thursday.

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-- Martin Thompson (mthom1927@aol.com), September 26, 2000