Oil hovers just below $36 as US fuel stocks shrink

www.stuff.co.nz 14 February 2003

SINGAPORE: Oil prices were poised to scale to new 28-month highs yesterday as US fuel stocks fell to the lowest level since the 1970s Arab oil embargo, while Washington kept up efforts to build support for a war against Iraq.

US light crude touched an early peak at $US35.95 a barrel, the highest since October 2000, but eased back to $US35.82, a gain of five cents from Wednesday's settlement in New York.

"Balancing bullish fundamentals with political factors, we'll probably see a trading range between $US30 and $US40 a barrel over the next month," said Gordon Kwan, oil and gas analyst at HSBC in Hong Kong.

"Even without the threat of war in Iraq, there's still upside for crude prices. Despite talk of Venezuela increasing production and more Middle East barrels, it's not feeding into the United States yet and we're still in the depths of winter," Kwan said.

Figures from the government department Energy Information Administration (EIA) showed US crude inventories falling 4.5 million barrels to 269.8 million barrels in the week to February 7, the lowest level since October 1975.

Stocks are now below what US authorities recommend as the minimum of 270 million barrels - roughly 14 days of domestic consumption - to keep up with the nation's energy needs.

The EIA said inventories of heating oil, gasoline and jet fuel were also running at a deficit to year-ago levels.

Crude prices are less than $2 under a September 2000 peak at $37.80 when the Clinton administration ordered the release of reserves from strategic stocks. The Bush administration has so far shied away from using emergency oil.

"We are continuing to monitor the situation," US Energy Secretary Spencer Abraham said on Wednesday.

Along with healthy demand for winter heating fuels as parts of the United States have been blasted with Arctic temperatures, US fuel stocks have been severely dented by a two-month anti-government strike in Venezuela.

Venezuela, the fifth-biggest oil exporter, normally supplies 13 percent of US oil imports. Output in Latin America's biggest producer is making a slow recovery but is running at less than half of pre-strike levels at three million barrels per day.

MORE AIR STRIKE, EYES ON BLIX

Crude prices have shot up more than 30 percent since December on the Venezuelan outage and as the United States has pressed on with its campaign to disarm Iraq of banned weapons.

Iraq is the eighth-largest oil exporter, sending some two million bpd overseas.

Traders fear that with inventories already tight, war could trigger wider disruptions to crude supplies from other Middle East producers, which account for 40 percent of globally traded crude oil.

US-British aircraft attacked a ballistic missile system in southern Iraq for the second day in a row as top UN weapons inspectors prepared to report on Friday on their efforts to assess Iraq's weapons programmes.

Allied aircraft have been increasingly attacking Iraqi air defence missiles, radar and communications in the north and south, but strikes against surface tactical missiles are rare.

UN diplomats said on Wednesday that missile experts called in by arms inspectors believed that the range of Iraq's Al Samoud missile might exceed UN limits, a claim that could boost the US campaign against Baghdad.

Russia, which with France, Germany and China is opposed to imminent military action, called for more study on the missile.

The United States has called Friday's report by chief weapons inspectors Hans Blix and Mohamed ElBaradei "pivotal" in deciding whether to go to war.