Petroleum prices at two-week highs on U.S. data, Yukos

By Myra P. Saefong
Last Updated: 12/15/2004 12:17:13 PM

SAN FRANCISCO (CBS.MW) -- U.S. distillate inventories failed to increase last week and Russian oil giant Yukos has filed for bankruptcy, combining to stoke supply concerns Wednesday as wintry weather starts to set in and lifting petroleum futures to their highest levels in two weeks.

"This is like triple bad news for the oil markets -- the supply data shows it could be a long winter, the much, much colder temperatures across the country and the bankruptcy of Yukos -- all are contributing to the rise in prices," said Kevin Kerr, president of Kerr Trading International.

Heating oil for January delivery rose 6.35 cents, or 4.9 percent, to trade at $1.368 a gallon on the New York Mercantile Exchange. The contract climbed to a session high of $1.375, its steepest level since Dec. 1.

January crude was last at $43.65 a barrel, up $1.83, after trading at a peak of $43.95 -- its highest since Dec. 2.

Similarly, January unleaded gas tacked on 5.01 cents, or 4.5 percent, to stand at $1.16 a gallon after a $1.166 high. The intraday highs for the contracts are the highest they've seen since Dec. 2.

Earlier, the Energy Department said distillate inventories, which include heating oil, were unchanged for the week ended Dec. 10 at 119.3 million barrels. Separately, the American Petroleum Institute said distillates fell by 2.2 million barrels to total 118.6 million barrels.

But either way, the data defied general market expectations. Many analysts had been anticipating a buildup of between 1 million and 2 million barrels.

"Traders who were expecting up to a million-barrel build in distillates got a big smack-in-the-face wake-up call," said Kerr. "And more salt in the wound is old man winter, bringing colder temperatures for most of the nation."

"There is now no doubt that refineries are behind the eight ball heading into the throes of winter," he said. The winter season officially begins next Tuesday.

The Energy Department also reported lower crude inventories for the first time in 12 weeks, down 100,000 barrels in the latest week to a total of 293.8 million barrels. Meanwhile, the API said stocks rose 2.5 million barrels to 297.5 million barrels. Some analysts had been looking for a drawdown of between 1 million and 2 million barrels.

"OPEC stated that ships were full and on the way to the United States and stockpiles would increase -- [the government] report contradicts that view point," said John Person, president of National Futures Advisory Services. Weekly U.S. imports fell 498,000 barrels per day to average about 10.4 million barrels per day, according to the government data.

Meanwhile, motor gasoline supplies rose 1.5 million barrels to stand at 209.6 million barrels, according to the Energy Department. By contrast, the API reported a 1.3 million-barrel decline to 206 million barrels, defying the expectations of most analysts.

Yukos files U.S. bankruptcy

Adding support to prices Wednesday, Yukos (YUKOY) has been forced into bankruptcy as Russia seeks to collect close to $28 billion in taxes the government believes the oil concern owes.

"Crude oil is stronger on fears of potential conflicts from the announcement that Russia's problem oil company filed Chapter 11 in Houston to ward off the sale of one of its main asset companies, Yuganskneftegaz," said Person.

"This could create tensions from the Russian government and other oil interests," he said. See full story.

Meanwhile, Iran has announced that it will cut production in keeping with the Organization of Petroleum Exporting Countries' decision to shave off 1 million barrels per day in actual output starting Jan. 1, according to Person.

So the supply data and Yukos news, combined with the fact that OPEC members are cutting production, are leading traders to believe that oil prices won't be headed back to the $30 level any time soon, he said.

It was important to see if the supply figures "supported OPEC's view that the world was adequately supplied," but the figures actually showed an overall decline in petroleum inventories, he said.

And "as the dollar declines, the fear is heightened that more cuts from OPEC will come," he said.

Elsewhere on Nymex, January natural gas traded at $7.34 per million British thermal units, up 0.7 cent after climbing Tuesday by more than 2 percent.

In the equity market Wednesday, energy indexes gained ground, with the Amex Oil Index (XOI) leading the way.

Among metals futures, gold futures climbed to their highest level in a week, with traders convinced that the Federal Reserve's fifth hike in interest rates this year will be inadequate to fight inflationary pressures.

The Reuters/CRB index, a broad measure of commodity futures markets, was up 1.5 percent at 283.62 points.