Oil Prices Fall Despite Heating Oil Fears

Associated Press

11.11.2004, 07:45 AM

Oil futures prices fell Thursday as markets digested news of a rise in crude inventories but lower-than-expected U.S. heating oil stocks. A Nigerian high court also banned a planned general strike that would have targeted oil exports - a situation that had been worrying traders.

Crude for December delivery was down 60 cents to $48.26 per barrel in electronic trading by early afternoon in Europe in advance of the opening on the New York Mercantile Exchange. Heating oil also fell to $1.3925 per gallon while natural gas was down at $7.575.

December Brent crude was down 30 cents at $44.40 a barrel in electronic trading on the International Petroleum Exchange in London.

In Nigeria, Justice Tanko Mohammed Yusuf said in an order to the main Nigeria Labor Congress that "it shall not embark on any strike from 16th of November 2004 or any day thereafter." Nigeria, pumping 2.5 million barrels of oil a day, is Africa's largest oil producer and the No. 5 source of U.S. oil imports.

The announcement Thursday of Palestinian leader Yasser Arafat's death was expected and so did not significantly move the market, analysts said, but added that prices could move higher if Middle East unrest follows.

Light, sweet crude had risen $1.49 on Wednesday to close at $48.86 per barrel after a weekly U.S. Energy Department report showed commercially available supplies of distillates dipped by 100,000 barrels last week to 115.6 million barrels.

The figure is around 13 percent below year-ago levels and signaled the eighth straight week that supplies of distillates, which include heating oil, diesel, jet fuel and kerosene, had fallen. That fueled concerns of possible shortfalls ahead of the Northern Hemisphere winter.

While distillates fell, however, the weekly supply report showed crude inventories rose 1.8 million barrels last week to 291.5 million barrels, or just slightly below year-ago levels.

"The reaction reinforces the current market thesis that `It's all about heating oil,'" Energyintel's David Knapp said in a research note.

Oil prices would have to surpass $90 per barrel to reach the inflation-adjusted peak set in 1980, and crude futures are down more than 12 percent from the Nymex closing high of $55.17 set twice in late October.

But analysts suggested prices could soon head upward again.

"All we need is a cold snap, particularly in the United States," said Kevin Norrish, head of commodities research at Barclay's Capital, or "evidence that China is returning to the market in force and buying."

Chinese crude imports slowed in September from peak summer levels, and an interest rate hike in late October - while small - "made people nervous," said Norrish.

Oil supplies in the United States, the world's largest consumer, have grown steadily over the past seven weeks due to high levels of imports and the recovery of pre-hurricane season production levels in the Gulf of Mexico.

But there is still widespread concern over excess capacity, now hovering just above the world's daily diet of 82.4 million barrels, which leaves little wiggle room in a possible extended production outage.

Attacks on Iraqi energy facilities and a prolonged battle for survival by Russian oil giant Yukos also remained areas of concern Thursday.

Saboteurs on Wednesday blew up a gas pipeline in northern Iraq that connects the Khabbaza fields with the North Gas Co. near the northern city of Kirkuk. An earlier strike on Iraq's oil export pipeline to Turkey affected the country's much needed oil revenues.

A Russian court, meanwhile, has frozen oil giant OAO Yukos' stake in one-time merger partner Sibneft, setting the stage for the possible confiscation of those shares by prosecutors.

The crippled oil giant - teetering on the brink of bankruptcy - has said its output of 2 million barrels daily is in jeopardy from Moscow's all-out assault to claim back taxes in excess of $17 billion.