Oil closes higher for the month

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 4:29 PM ET Jan. 31, 2003

NEW YORK (CBS.MW) -- Oil futures fell Friday but ended 10 percent higher for the month, with traders still concerned about the state of oil supplies in the face of an ongoing strike in Venezuela and a potential U.S.-led war with Iraq.

On the New York Mercantile Exchange, the benchmark March crude contract closed at $33.51 a barrel, down 34 cents. The contract closed at $30.59 a barrel on Dec. 31.

Meanwhile, gold futures eased back, ending the session nearly dead even with where it closed a week ago but $20 higher for the month. See Metals Stocks.

Thorsten Fischer, an energy economist at Economy.com, believes crude prices will remain high in the run-up to any war, which he expects to begin by March.

Under this scenario, prices will likely peak "when the first shots are fired, assuming everything is going to plan," he said.

And "once there is progress in the campaign, oil prices will come down quickly," he said.

On Friday, President Bush and British Prime Minister Tony Blair discussed possible timetables for diplomacy and war in Iraq. See CBS News for the latest.

Michael Cavanaugh, an analyst at Peak Trading Group in Chicago, said the only amount of uncertainty with relation to petroleum prices surrounds various war scenarios, including the possibility that President Saddam Hussein will destroy Iraq's oil fields or that the U.S. opening the borders for international oil players.

Looking ahead to next week, Cavanaugh said "the market, barring any shocking news, should trade sideways until Powell speaks" on Wednesday at the United Nations.

In a much-anticipated address, Secretary of State Colin Powell is expected to provide intelligence illustrating Washington's assertion that Iraq has been defying U.N. weapons inspectors.

Oil supplies at minimum

U.S. crude inventories remain low at 273 million barrels, and a war with Iraq on top of Venezuela's ongoing oil strike could tighten supplies further.

The low supplies "already led to reduced crude refinery inputs and consequently lower output of refined products," said Fischer.

This week, the American Petroleum Institute and Energy Department reported hefty declines in distillate and gasoline supplies.

Distillate inventories declined by 6.8 million barrels during the week ended Jan. 24, according to the Energy Department, while the API said supplies fell by 7.5 million barrels. Both groups said gasoline stocks fell by 3.3 million barrels. See full story.

At the same time, the strike in Venezuela seeking to topple leftist President Hugo Chavez seems to be "easing" with oil production above 1 million barrels per day, or at about a third of normal output, said Fischer.

But the government has been extracting oil from newer fields, which is easier to pump, he noted.

"Additional increases in production will be hard to come by unless oil workers return to their job," he said, adding that such a scenario is unlikely given that "oil workers are among the fiercest opponents" of Chavez.

In Friday's Nymex action, February unleaded gasoline fell by 1.13 cents to 97.56 cents a gallon, while February heating oil eased back by 2.17 cents to 95.88 cents a gallon.

March became the lead-month contract after the market closed. March unleaded gasoline fell 1.19 cent to 96.6 cents a gallon and March heating oil closed at 93.26 cents a gallon, down 0.94 cent.

In other energy news, March natural gas closed higher by 2.2 cents at $5.605 per million British thermal units, after falling by nearly 5 cents a day earlier.

Natural-gas inventories fell by 247 billion cubic feet to total 1.729 trillion cubic feet in the week ended Jan. 24, the Energy Department said early Thursday.

Over in the equities arena, most oil service stocks closed higher. The Oil Service Index ($OSX: news, chart, profile) climbed 1.6 percent. See Energy Stocks.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 248.5, up 0.5 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.