Bush's speech revitalizes crude

cbs.marketwatch.com FUTURES MOVERS By Myra P. Saefong, CBS.MarketWatch.com Last Update: 11:00 AM ET Jan. 29, 2003

NEW YORK (CBS.MW) -- Crude futures moved back toward $33 a barrel Wednesday as President George Bush's rationale for war against Iraq revitalized investor concerns over a disruption of oil supplies out of the Middle East.

Prices were higher despite only minor changes to U.S. crude supplies last week. The market was looking for a sizable decrease on the back of Venezuela's ongoing oil strike.

On the New York Mercantile Exchange, the March crude futures contract traded at $32.92 a barrel, up 25 cents.

Meanwhile, February gold traded near $370 an ounce. See Metals Stocks.

"If there were any doubters before last night, the situation become crystal clear," said Mike Cavanaugh, an analyst at Peak Trading Group in Chicago. Bush's State of the Union Address Tuesday evening "made it clear to the world that our intentions are to disarm Iraq." See speech highlights on CBS News.

Inventory data weren't quite as convincing. The Energy Department and American Petroleum Institute reported on minor changes to crude inventories during the week ended Jan. 24.

Inventories fell by 500,000-barrels, the Energy Department said, but the API posted a 232,000 barrel rise. Total crude inventories stand at 273 million barrels, according to both groups.

The results defied analysts' expectations for a sizable drawdown. Analysts at Fimat USA expected a decline of 4 million barrels in crude inventories.

Crude inventories are about 45 million barrels below their year-ago level and just above the minimum operational inventory level of 270 million barrels.

Crude imports were close to their level of last week, and it appears that some crude oil from Venezuela is still arriving in the U.S., according to Economy.com energy economist Thorsten Fischer.

Distillate inventories declined by 6.8 million to 122.4 million barrels in the latest week, the Energy Department reported. The API said supplies fell by 7.5 million to 123.1 million barrels.

Fimat was looking for a fall of 5 million barrels for distillates and a rise of 1 million barrels for gasoline.

"The tight crude inventories are cause for some concern, because they have an adverse effect on the production of refined products," said Fischer.

Following the news, petroleum-product prices traded higher. February unleaded gasoline rose by 1.88 cents to 94.6 cents a gallon. February heating oil traded at 95.1 cents a gallon, up 2.06 cents.

More support for oil

With Bush's strong case for war on Iraq and Secretary of State Colin Powell due to provide further incriminating evidence against Iraqi President Saddam Hussein to the UN Security Council on Feb. 5, "it is increasingly likely that an attack will be launched by mid-February," Fischer said.

And the strike in Venezuela will continue to be a supportive factor for oil, Fischer said.

While there is confirmation from both Venezuelan President Hugo Chavez and striking oil workers that production has surpassed 1 million barrels per day, about one third of normal production, "the pick-up in production is due to the fact that production has been focused on newer oilfields where crude oil is easier to extract," he said.

He pointed out that "additional increases in production that require extraction of crude from older fields will be much harder to come by" and "it will take a resolution of the general strike and considerable time and investment to restore crude oil production in Venezuela to pre-strike levels."

In other energy news Wednesday, natural gas for February was up 4.6 cents at $5.49 per million British thermal units. The March contract, which will become the lead-month at the session's close, was up 7.1 cents at $5.43 per million British thermal units.

Over in the equities arena, most oil service stocks traded lower. The Oil Service Index ($OSX: news, chart, profile) was down 0.3 percent.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, traded at 245.9, up 0.5 percent amid strength in crude futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.