Crude Oil Rises as US Inventories Decline With Winter Looming

Sydney, Oct. 18 (Bloomberg) -- Crude oil rose as U.S. inventories unexpectedly fell close to a 24-year low, with the winter heating season about to boost demand in the world's biggest energy market.

U.S. crude oil inventories fell 1.1 percent, the American Petroleum Institute said in its weekly report. 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 69 cents, or 2.1 percent, to $33.68 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Oil recently traded at $33.61, and has gained 31 percent so far this year.

Prices fell 5.7 percent in the first two days of floor trading in New York this week, 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 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.

``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.''

Middle East

She said almost 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,'' Kah said.

Israeli and Palestinian leaders agreed at the emergency summit in Egypt to condemn recent violence and work toward a possible resumption of peace talks.

The negotiations came after almost three weeks of strife in Israel, the West Bank and Gaza Strip left more than 100 people dead. Oil touched $37 a barrel on Thursday, just 80 cents below a 10-year high amid concern about Middle East violence.

``This was about as good as could be expected -- at least they appear to be disengaging,'' said Michael Fitzpatrick, an energy trader at Fimat USA Inc. in New York.

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. --------

So much for the extra OPEC oil hitting these shores. SPR oil??? JB

-- Jackson Brown (Jackson_Brown@deja.com), October 18, 2000

Answers

Boy, this is a real kick in the head. It's too late in the season for crude inventories to be dropping like this.

-- Uncle Fred (dogboy45@bigfoot.com), October 18, 2000.