Oil Firm After Powell Speech, U.S. Supplies Slide
www.morningstar.ca 5 Feb 03(3:28 PM) | E-mail Article to a Friend
NEW YORK (Reuters) - World oil prices rose 1 percent on Wednesday as Secretary of State Colin Powell at the United Nations sought to convince the world of the need for war to disarm Middle East oil producer Iraq.
Further strength came from a U.S. government report showing a steep fall in stocks of heating oil, as freezing temperatures stoked demand and fuel distributors began to hoard supplies ahead of possible war.
U.S. light crude
Heating oil futures hit $1 a gallon for the first time since December 2000, while gasoline futures rose to their highest level in 20 months.
The U.S. has vowed to disarm Iraq, the world's eighth biggest oil exporter, by force if necessary. Traders fear this could disrupt supplies from other producers in the Middle East, which pumps a third of the world's crude. Oil prices have risen 35 percent since November.
Presenting U.S. intelligence from spy satellites, telephone intercepts and Iraqi defectors, Powell argued that Iraq had concealed equipment from its suspected weapons programs to flout the U.N. inspectors searching the country for evidence of chemical, biological and nuclear arms.
France's foreign minister called on the U.N. Security Council to strengthen its inspection regime in Iraq and said military action against Baghdad should be only a final resort.
Russia's foreign minister said the U.S. information must now be verified by U.N. inspectors inside Iraq.
"I don't think that Powell was persuasive enough to convince, let's say, the French. That may lead to the U.S. having to go on its own or with a small international group," said Tim Evans, senior market analyst at IFR-Pegasus.
DEPLETED STOCKS
Prices were supported by news of a big drop in U.S. fuel stocks -- already depleted by a 65-day opposition strike in Venezuela, which normally supplies over 13 percent of U.S. crude and refined product imports.
U.S. heating oil stocks shrank 11 percent after a long cold snap in the high consumption Northeast region, a government report showed. Stocks have been depleted by cutbacks in U.S. refinery production as high crude oil prices slash plants' profit margins.
"Without the flexibility that ample inventories provide, oil markets now are as tight as a fully stretched rubber band. Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks," the EIA said.
Distillate stocks, including diesel fuel and heating oil, dropped 10.3 million barrels, the second largest weekly drop on record. Distillate fuel demand recorded the highest weekly average ever, the Energy Information Administration said.
"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."
Fears of a shortfall in gasoline supplies ahead of the summer vacation driving season are rising as refineries in Venezuela, normally a big gasoline supplier to the United States, remain well below capacity because of the strike.
Gasoline stocks dropped sharply too as refineries slowed operations. Stocks are now more than 5 five percent below last year.
Venezuela's crude oil supply is gradually recovering after the government succeeded in using replacement workers to restart operations. The opposition has called off strike in the non-oil sectors.
Ministers from the OPEC oil cartel have warned that as Venezuelan crude was coming back onstream, there could be a supply glut by the second quarter when demand drops off at the end of Northern Hemisphere winter. (Reporting by Andrew Mitchell; editing by Gary Crosse; Reuters Messaging: andrew.mitchell.reuters.com@reuters.net; +1 646 223 6051)