NYMEX oil ends 3 pct up on product draws, Iraq fears

www.forbes.com Reuters, 01.29.03, 3:38 PM ET

NEW YORK (Reuters) - NYMEX crude oil futures ended nearly a dollar higher Wednesday amid a steep drop in heating oil and gasoline stocks due to heavy cold weather demand and refinery run cuts.

Fears that a U.S.-led attack against Iraq could begin in late February or early March also supported buying sentiment as fresh U.S. diplomatic efforts being mounted in a final bid to avert war were seen as unlikely to avert conflict.

NYMEX March crude settled up 96 cents, or 3 percent, at $33.63 a barrel, after hitting a session high of $33.85. The day's peak was not far below the 26-month high of Jan. 21 at $35.20, built on fears of a possible war on Iraq.

In London, Brent March crude settled 75 cents higher, or 2.5 percent, at $31.02 a barrel.

"The real shock that jump-started today's advance with the inventory report was not the expected 0.5 million barrel decline in crude oil stocks, but the combined 10.5 million barrel drop in product inventories," said Tim Evans, senior energy market analyst at IFR-Pegasus in New York.

The day's rally carried prices back to the top of their recent range and averted any chance that the lack of an actual declaration of war with Iraq by President Bush in his State of the Union address Tuesday night could lead to a downside break, Evans added.

NYMEX February heating oil surged 4.09 cents, or 4.4 percent, to end at 97.13 cents a gallon, after rallying to an intraday high of 97.50 cents, the highest level since Dec. 17, 2000.

NYMEX February gasoline soared 4.41 cents, or 4.8 percent, at 97.13 cents a gallon, It peaked at 97.20 cents, the highest since June 3, 2001.

The United States on Wednesday said it was beginning a "final phase" of diplomatic consultations aimed at gathering support for increasing pressure on Iraqi President Saddam Hussein to disarm in one last bid to avoid war.

But German Chancellor Gerhard Schroeder, one of the European leaders strongly opposed to the war, said Wednesday he was unsure whether diplomacy can avert conflict.

U.S. Secretary of State Colin Powell is to present intelligence about Iraq's alleged weapons of mass destruction to the U.N. Security Council on Feb. 5.

In overnight trading, prices dipped after Bush did not call for immediate war on Iraq in his Tuesday night address. The losses were limited, however, as Bush also made clear the United States was prepared to act to disarm Iraq with or without U.N. backing.

"We will consult, but let there be no misunderstanding: If Saddam Hussein does not fully disarm, for the safety of our people, and for the peace of the world, we will lead a coalition to disarm him," he said.

Iraq has consistently denied it holds banned weapons. Meanwhile, the U.S. military announced it had called up more reservists, in addition to recent orders to deploy two more aircraft carriers to the Gulf region -- bringing carriers within striking distance of Iraq to four.

In its report, the EIA said U.S. refinery runs were down 2.8 percentage points to 87.2 percent of capacity, as many refineries began seasonal maintenance.

The slower pace of processing led to a contra-seasonal draw of 3.3 million barrels in gasoline stocks.

Crude stocks fell by a modest 500,000 barrels, as refiners apparently continued to find other foreign sources for crude oil to replace barrels in the wake of a 59-day-old strike in Venezuela, a major U.S. supplier. (Reporting by Gene Ramos; editing by Gary Crosse; Reuters Messaging: gene.ramos.reuters.com@reuters.net; +1 646 223 6054; email: gene.ramos@reuters.com)