Oil Stocks Shrink on Cold, War Hoarding

reuters.com Wed February 5, 2003 03:40 PM ET

NEW YORK (Reuters) - U.S. heating oil stocks shrank 11 percent last week, as frigid temperatures stoked demand and distributors stocked up ahead of looming war in Iraq, government figures showed Wednesday.

Distillate stocks, including diesel fuel and heating oil, held by oil companies dropped 10.3 million barrels to 112.1 million barrels in the week to last Friday, the Energy Information Administration said in its Weekly Petroleum Status Report.

Primary heating oil stocks alone dropped 5.4 million barrels to 42.5 million barrels, partly the result of a long cold snap in the high-consumption Northeast region. The figures exclude secondary inventories held by retailers or distributors,

"That's far above what was expected from weather," said Jim Ritterbusch, president of Ritterbusch and Associates in Illinois. "Distributors are stocking up in advance of a war."

Distillate fuel demand last week averaged 4.9 million barrels per day (bpd), the highest weekly average ever, and was up 10.5 percent from a year ago over the last four weeks, the EIA said. Distillate stocks have fallen 17.1 million barrels, or 13 percent, in the last two weeks.

Oil prices jumped after the report, with New York crude futures rising 35 cents to $33.93 a barrel. Heating oil futures hit $1 a gallon for the first time since Dec. 2000.

Stocks were further depleted by further cutbacks in production by refiners, whose profit margins have been slashed by high crude oil costs as a two-month oil strike in Venezuela has pushed oil prices to two-year highs.

Refineries were operating at 85.8 percent of capacity last week, down from 87.2 percent the previous week, the EIA said.

Gasoline stocks dropped 3.4 million barrels to 209.6 million barrels as refineries slowed operations. Stocks are now more than 5 percent below last year.

Refineries in Venezuela, normally a big gasoline supplier to the United States, are still operating well below capacity because of the strike, raising fears of a shortfall in gasoline supplies ahead of the summer vacation driving season.

Reformulated gasoline stocks alone fell 4.2 million barrels to 35.4 million barrels, down 23 percent from last year.

Total fuel demand over the last four-week period averaged 20.1 million bpd, or about 4.9 percent more than the same period last year, the EIA said. Over the last four weeks, motor gasoline demand was up 5.0 percent, and residual fuel demand up 15.7 percent compared with the same period last year.

"Refiners weren't producing because of lousy margins and the consumers were consuming," said Mike Fitzpatrick, analyst with Fimat USA.

Crude oil stocks edged up 1 million barrels to 274.3 million barrels, the EIA said, continuing to hold just above 26-year lows.

The draw on product stocks has sharply increased the premium for heating oil and gasoline over crude oil -- the "crack spread." This has already begun to improve refiners' profit margins and should encourage them to refine more crude in coming weeks.

Gross refining margins more than doubled to $5.75 for each barrel of crude oil distilled last week, according to Salomon Smith Barney.

"The main impact will be to expand the heat cracks further," said Ritterbusch.

The American Petroleum Institute, an industry group, reported that distillate stocks fell 8.7 million barrels, and gasoline stocks dropped 3 million barrels. API said crude stocks dropped 79,000 barrels.