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Wed, 18 Oct 2000, 12:07am EDT

10/17 23:13

Crude Oil Rises on U.S. Inventory Decline Just as Winter Starts

By Stephen Wisenthal

Sydney, Oct. 18 (Bloomberg) -- Crude oil rose as U.S. inventories unexpectedly fell to near a 24-year low, just as the peak demand season for heating fuel is beginning in the world's biggest energy market.

U.S. crude oil inventories fell 1.1 percent last week, the American Petroleum Institute said late yesterday. Analysts had expected an increase of as much as 1 percent. The decline left supplies 6.9 percent lower than a year earlier -- wider than the previous week's year-on-year deficit of 5.5 percent.

``That's a huge drop and not the sort of thing we'd expected now,'' said Peter Beutel, president of Cameron Hanover Inc., an oil consulting firm in New Canaan, Connecticut.

Crude oil for November delivery rose as much as 71 cents, or 2.2 percent, to $33.70 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Oil recently traded at $33.67, and has gained 31 percent so far this year.

The decline in U.S. supplies overshadowed the effect on oil prices of talks in the Middle East aimed at ending three weeks of fighting in that region.

Prices had dropped 5.9 percent on Monday as negotiations between Israeli and Palestinian leaders eased concern that violence in the Middle East will disrupt supplies from a region that produces one third of the world's oil.

Crude oil inventories in the U.S. fell 3.11 million barrels last week, to 280.72 million barrels, the API said after floor trading ended. Ten analysts surveyed by Bloomberg News had expected supplies to rise between 2.2 million and 3.1 million barrels. Inventories are close to the 24-year low of 279.0 million barrels reached on Aug. 4.

U.S. imports of crude oil declined by 967,000 barrels a day to 8.25 million barrels a day, the lowest level since the week ended July 28.

Tight Supply

``You'd really expect to see crude stocks increasing'' with OPEC raising its production quota, and the U.S. government releasing emergency supplies, said Marianne Kah, chief economist at Conoco, the fourth-largest U.S. oil company. ``The supply- demand balance must be tighter than the (International Energy Agency) is reporting.''

The API report also showed an unexpected 540,000-barrel drop in distillate inventories, which include heating oil and diesel, to 112.68 million barrels. Analysts had expected a rise of between 300,000 and 900,000 barrels.

Inventories are now 22 percent lower than a year earlier, compared with a deficit of 21 percent a week earlier. Heating oil inventories are 37 percent lower than a year ago.

``It's yet another week in which we didn't build distillate for the winter,'' said Cameron Hanover's Beutel. ``It's a bullish number.''

Conoco's Kah said most of the increase in the crude price in after-hours trading would have come from the inventory report, though there may be some anxiety about the Middle East situation.

``The market will calm down very quickly if the violence is contained,'' she said.

Oil touched $37 a barrel on Thursday, just 80 cents below a 10-year high, amid concern about Middle East violence.

Middle East Agreement

Israeli and Palestinian leaders agreed at the emergency summit in Egypt to call for an end to violence and consult with the U.S. within two weeks on a possible resumption of peace talks, U.S. President Bill Clinton said.

Israeli Prime Minister Ehud Barak and Palestinian leader Yasser Arafat also agreed to an international commission to investigate the violence, Clinton said. Israel agreed to withdraw its forces to positions held before the unrest began.

In the West Bank and Gaza Strip, where more than 110 people have died in clashes between Israelis and Palestinians since Sept. 28, violence continued after the agreement was announced. Palestinians said the pact didn't respond to some of their basic demands, such as an independent state.

Supplies from the Middle East and Persian Gulf haven't been disrupted by the conflict. Saudi Arabian Oil Minister Ali al-Naimi said over the weekend that the Organization of Petroleum Exporting Countries, or perhaps just Saudi Arabia alone, would boost output if prices stayed high.

OPEC on Oct. 1 increased its daily production quota by 800,000 barrels, its third quota boost this year. The U.S. government also this month released 30 million barrels of oil from its strategic reserve, to ease a shortage of heating oil.

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-- (Daily@oil.news), October 18, 2000