Crude Oil Futures End Sharply Lower

www.miami.com Posted on Mon, Feb. 03, 2003 Associated Press

NEW YORK - Crude oil futures finished sharply lower Monday as Venezuelan production continued to climb and officials of the Organization of Petroleum Exporting Countries warned of a possible supply glut.

On the New York Mercantile Exchange, nearby March crude fell 75 cents to close at $32.76 a barrel.

March heating oil fell 1.45 cents to close at 91.81 cents a gallon; March gasoline dropped 0.92 cent to close at 95.68 cents a gallon.

On London's International Petroleum Exchange, nearby March crude fell 85 cents to close at $30.25 a barrel.

February natural gas gained 16.1 cents to settle at $5.766 per 1,000 cubic feet.

"There are signs that Venezuela is returning to more normal and OPEC is showing some concern that the market could be oversupplied in the second quarter," said Tom Bentz, an analyst at BNP Paribas in New York.

Venezuela's President Hugo Chavez said over the weekend that Venezuelan crude oil output has climbed to 1.78 million barrels a day, or more than half the level Venezuela produced before the start of a strike in early December. Dissident workers at state-owned monopoly Petroleos de Venezuela estimated output at 1.22 million barrels a day.

Before the strike, Venezuela produced nearly 3 million barrels a day of crude oil.

The Venezuelan strike helped cut into U.S. crude inventories, putting upward pressure on oil prices.

But with the strike breaking down, analysts expect American inventories to rebound from a recent slump.

"We see Venezuela as less and less of a supportive factor, as output there has rebounded to about the halfway mark and refiners have had ample time now to make further adjustments to their mix of feeds," said Tim Evans, an analyst at IFR Pegasus in New York.

Evans and most other analysts surveyed by Dow Jones Newswires expect U.S. crude stocks to decline by an average of 2 million barrels in the weekly government and industry data to be released Wednesday.

The increase in Venezuelan production, and potentially, exports, comes just as OPEC's latest production hike of 1.5 million barrels a day takes effect.

OPEC members agreed to the production hike last month in response to the Venezuelan strike. Now, officials are concerned that prices could collapse if Venezuelan production returns to pre-strike levels at a time of year when demand tends to slacken.

"They're becoming a little alarmed by the possibility of a price collapse," Bentz said of OPEC officials.

OPEC President Abdulah bin Hamed Al-Attiyah said that the market could be flooded with as much as 4 million barrels a day of extra oil during the second quarter when demand tends to drop by 2 million to 3 million barrels a day. This could trigger a price collapse, he said.

Libyan Oil Minister Abdul Hafez Zlitni said OPEC will cut production at its March meeting if prices fall and supply and demand are in equilibrium.

He said current oil demand was "exaggerated," with refiners building up stocks rather than using them.

However, with the threat of a U.S. attack on Iraq looming over the market, few analysts expect oil prices to retreat dramatically in the near term. Traders worry that an attack on Iraq could lead to a large-scale oil supply disruption in the Persian Gulf.

For now, though, traders are awaiting a presentation on Iraq by Secretary of State Colin Powell to the U.N. Security Council on Wednesday.