Oil firm, gold down after Powell speech - Oil traders said Powell's U.N. speech was largely as expected

europe.cnn.com Thursday, February 6, 2003 Posted: 0018 GMT

LONDON (Reuters) -- Oil prices held firm but gold eased after U.S. Secretary of State Colin Powell delivered his key address on Iraq to the United Nations Wednesday.

Oil prices also found support from U.S. inventory data showing a steep fall in stocks of U.S. heating oil, as freezing temperatures stoked demand and distributors began to hoard supplies ahead of a possible war.

In London, benchmark Brent crude for March delivery rose 27 cents to $31.36 a barrel, while U.S. light crude rose 22 cents to $33.80.

In a presentation to the U.N. Security Council, 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.

Traders and analysts said Powell's address was largely as expected and, on the oil markets, some profit-taking set in after his speech, taking Brent crude prices off a session high of $31.80.

Gold prices reel

In the gold market, profit-taking sent prices reeling from 6-1/2 year highs in volatile trading after Powell spoke.

New York gold futures had hit their highest level since August 1996 on safe-haven buying beforehand.

At the COMEX division of the New York Mercantile Exchange, gold for April delivery fell more than $13 from its peak, ending down $2.70 at $377.20 an ounce. It topped at $390.80 overnight and dipped to $373 after Powell spoke.

"I guess it's a classic example of buying the rumor and selling the news," said Drummond Gill, head of spot trading at bullion dealer ScotiaMocatta in Toronto. "I think the jury is still out. I think he did a

good job of trying to make the case."

Spot gold hit $388.50 and closed Wednesday at $375.60/6.60, off from $378.65/9.15 at Tuesday's close. London bullion dealers fixed the afternoon spot reference price at $382.10 an ounce.

Steep drop

Oil prices were kept firm by data showing a steep drop in stocks of U.S. oil products.

"You could follow these numbers for a decade without coming across a set that are quite as stark as these," said J.P. Morgan's Paul Horsnell.

"The U.S. oil products systems is on the verge of an implosion and it will take quite some time to get things back to normal," he added in a research note.

Distillate stocks, including diesel fuel and heating oil, dropped by 10.3 million barrels to 112.1 million barrels in the week to last Friday, according to U.S. government data.

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

Overall crude stocks fell slightly, according to industry figures, but rose slightly, according to government statistics as a two-month-old strike in Venezuela, the world's fifth largest oil exporter, relinquished its stranglehold.

Venezuela output

Venezuela's striking oil workers said on Tuesday crude output was 1.2 million barrels per day, although President Hugo Chavez, whom the strikers are trying to force to resign, said output was approaching 2.0 million bpd.

In January, the Organisation of the Petroleum Exporting Countries agreed to increase output to help compensate for the effects of the Venezuelan strike.

But last weekend, OPEC ministers warned that as Venezuelan crude was coming back onstream, there could be a supply glut by the second quarter when demand traditionally drops off with the end of cold weather in the northern hemisphere.

Some analysts predict that the war premium built into prices will quickly melt away if the war proves short-lived.