Oil futures break six-session run up - Natural-gas prices up after big stock drop; gold rallies

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:37 PM ET Feb. 20, 2003

NEW YORK (CBS.MW) -- Crude prices declined Thursday, breaking a six-session rise on the back of mixed data on U.S. crude stocks and the expiration of the March crude contracts.

"Selling begets selling and nobody wants to be the last man standing especially at these 'nosebleed' levels," said John Person, head analyst at Infinity Brokerage Services.

On the New York Mercantile Exchange, crude for March delivery closed lower by 37 cents at $36.79 a barrel.

Earlier, the benchmark contract briefly touched $37.55 -- a level not seen since spot prices topped out at $37.89 in September 2000. It gained $2.68 per barrel between Feb. 10 and Feb. 19.

April crude, which became the lead-month contract at the session's close, slipped by 92 cents to close at $34.74 per barrel.

Also on Nymex, gold futures prices closed higher at $353.10 an ounce amid a weaker U.S. dollar and growing global tensions. See Metals Stocks.

Analysts blamed the oil price pull back on the expiration of the March crude contracts as well as confusing data from two key sources.

"After the mixed data traders are dazed and confused -- the DOE says crude stockpile rose while the API says they fell," said Kevin Kerr, analyst at Weiss Research in Palm Beach Gardens, Fla. "Traders don't know what to believe with skewed data like this."

Early Thursday, the Energy Department said the nation's inventories of crude oil rose by 3.1 million barrels in the week ended Feb. 14 compared to the prior week. But the American Petroleum Institute reported a 3.3 million-barrel decline in crude stocks.

Aggregate crude stocks stood at 272.9 million and 268.3 million barrels, according to the Energy Department and API, respectively.

On a year-over-year basis, however, crude inventories are down more than 15 percent, the equivalent of 50.4 million barrels, the government report said, amid tight import supplies brought on by Venezuela's general strike and war tensions in the Middle East.

"Crude-oil inventories remain critically low, just slightly above the lower operational inventory level of 270 million barrels," said Thorsten Fischer, an economist at Economy.com, referring to the government data. That's the minimum level required to keep refineries running normally.

Last week, the Energy Department reported its lowest level for inventories in 27 years -- just under 270 million barrels.

"Supplies are still tight and the concern is there will be a continued imbalance between an immediate replenishment of stockpiles and demand," said Infinity Brokerage's Person, adding: "there does not look like there is an immediate solution and tensions are on the rise in Venezuela and in the Middle East."

The latest data came as a surprise to some industry analysts. Fimat USA had been looking for inventories to rise by 1.75 million barrels, while IFR Pegasus had expected crude stocks to fall by 1 million to 3 million barrels.

Starting Wednesday, the API and Energy Department will release their weekly data on petroleum supplies at 10:30 a.m. Eastern time, an hour and a half later than previously scheduled so traders will be able to see the reports during the trading session.

$40 oil still possible

Some analysts were still optimistic that the tight inventory situation could take prices to highs not seen since the Gulf War in the early 1990s.

Oil prices could soon hit $40 a barrel, said John Vail, an analyst at Mizuho Securities USA, based in Chicago, with a stockpiling trend taking part of the blame.

"China's crude imports are rising rapidly as they plan a significant strategic petroleum reserve," he said, adding that the country's imports were up 77 percent in January, representing an additional 880,000 barrels per day of crude demand.

"As with many commodities, war fear inventory build is a major factor," Vail said.

And as war becomes more likely, "crude oil prices have started a rally, which will continue and even accelerate during the run-up to military action," said Economy.com's Fischer. See Countdown to War.

On the other hand, if investors assume that war with Iraq is closer, this could lead to some speculation that oil prices "could settle back down as OPEC promised to 'open the spickets' in case military action occurred," said Person.

In other energy news Thursday, Nigerian oil workers met with government officials in a bid to end a strike that began Saturday. Production and exports haven't yet been affected.

In Venezuela, a country still suffering from a labor strike that began Dec. 2, opposition leaders threatened to call a new strike in response to the arrest of strike co-leader Carlos Fernandez. The general labor strike ended this month, except in the oil sector.

Oil product supplies fall

The API and Energy Department also reported declines in inventories of petroleum-product stocks for last week.

Distillate inventories declined by 3.2 million to total 107 million barrels, while gasoline supplies fell by 1.8 million to 210.7 million barrels, the API said.

The Energy Department posted a 4.6 million-barrel fall for distillates to total 103.6 million barrels. And gasoline stocks fell by 1.4 million barrels to 211.2 million barrels in the latest week.

The distillate results reflect "high demand caused by severe winter weather and cold temperatures, especially in the Northeast," said Fischer.

IFR Pegasus had forecast drawdowns of 2 million to 4 million barrels in distillates and of 1 million to 3 million barrels in gasoline supplies. Fimat had been on the lookout for distillates falling by 4 million barrels but gasoline stocks increasing by 2 million barrels.

Following the supply update, March gasoline eased back by 3.64 cents to 96.58 cents a gallon. The March contract for heating oil fell 4.06 cents to $1.0587 per gallon.

Meanwhile, refinery utilization rose by 2.2 percent to 87.8 percent of capacity, the API reported, while the Energy Department said utilization rose by 2.3 percent to 88.8 percent.

Supply data finally lifts natural gas

In other energy trading, natural-gas futures closed higher, finally finding support from the larger-than-expected decline in supplies.

On Nymex, March natural gas closed at $6.162 per million British thermal units, up 2.8 cents after trading mostly flat during the session. It touched an intraday high at $6.25, a level last seen in February 2001, when prices reached $7.10 per million British thermal units.

The contract gained nearly 4 percent in Wednesday's action.

Also Thursday, the Energy Department reported a 203 billion cubic fall in inventories as of Feb. 14.

By two key measures, total inventories of 1.168 trillion cubic feet are significantly lower -- 868 billion cubic feet less than the year-ago level and 436 billion cubic feet below the five-year average, the government said.

Fimat expected a contraction of 168 billion cubic feet, while IFR Pegasus was looking for a decrease of 150 billion to 170 billion cubic feet. A year earlier, stocks contracted by 124 billion cubic feet.

In the equities arena, most oil-service shares traded higher. The Philadelphia Oil Service Index ($OSX: news, chart, profile) rose more than 1 percent. See Energy Stocks.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at 246.5, down 0.6 percent. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco