Commodities - Oil soars on supply, gold closes lower

www.forbes.com Reuters, 03.12.03, 5:37 PM ET NEW YORK, (Reuters) - Crude oil prices jumped about 3 percent on Wednesday as big drops in oil and gasoline inventories in the United States deepened fears about dwindling supplies as a U.S. war with Iraq neared. Weekly estimates of U.S. petroleum stocks and usage gave a solid edge to energy trading even as rumors and speculation continued to roil gold and other markets during the day. A showdown between the U.S. and U.N. opponents of a quick invasion to disarm Iraq looked set by Friday. But gold and Wall Street again disconnected from Iraq fears for a day as a rumor -- later denied -- swirled that al Qaeda leader Osama bin Laden had been captured. Gold fell and Wall Street stocks rallied on the rumor. At the New York Mercantile Exchange, oil markets had been nervously marking time this week ahead of what is seen as a final U.N. vote on Iraq before a U.S.-led attack to disarm and oust the government of Saddam Hussein. But oil prices suddenly took off again after the weekly U.S. petroleum data. Crude oil for April delivery closed $1.11 higher at $37.83 a barrel. The 12-year high of $39.99 traded on Feb. 27. Gasoline futures also rallied as sharp declines in U.S. gasoline stocks last week signaled demand was already rising ahead of the spring and summer driving seasons. April gasoline rose 1.52 cents at $1.1139 a gallon. The U.S. Energy Information Administration said on Wednesday that lower imports caused U.S. refiners to dip into crude oil stocks last week, pushing on-hand supplies down 3.8 million barrels to 269.8 million barrels. That matched the lowest level of U.S. crude stocks since 1975. Gasoline inventories fell 4.1 million barrels to 202 million, with refiners' production still biased toward heating oil. Gasoline imports were also low as Venezuela, a major supplier, hobbled by an oil workers' strike that began Dec. 2. Distillate stocks, which include heating oil, rose 1.8 million barrels last week. But tracking crude oil, April heating oil still closed 0.50 cent higher at $1.0352 a gallon. The United States was pressing for a Security Council vote by Friday on an amended resolution in which its chief ally, Britain, set out six tough new conditions for Baghdad to avoid war. A deadline for Iraq to comply could be moved from March 17 to March 21, diplomats said on Wednesday. U.S. President Bush has vowed to disarm Iraq, with or without U.N. support. There are about 250,000 American and British forces already massed in the Middle East Gulf region. With the U.N. vote stalled, the U.S. war on al Qaeda grabbed center stage. The bin Laden rumor fed investor hopes that the group which carried out the Sept. 11 attacks and threatened more may be running out of hiding places. Pakistani politician Agha Murtaza Pooya, deputy head of the small Awami Tehreek party, said he had told the Pashto language service of Iranian Radio that bin Laden was in custody. "I just said he's in custody. I didn't say where he was captured or what," he told Reuters. "I said he's in custody. And in custody of those that are chasing him." "This is absolutely unfounded and absolutely baseless," said Pakistan's Interior Minister Faisal Saleh Hayat of the rumor after Pooya's comments were carried by BBC radio. White House and U.S. officials also denied the report. But both the dollar and the Dow Jones industrial average rallied the bin Laden rumor triggered covering of "shorts" or positions sold earlier. A narrowing of the U.S. trade deficit added some extra incentive to take profits. "The Osama bin Laden story triggered some long liquidations" of currencies versus the dollar, said David Schoenthal, a managing director at Bear, Stearns in New York. "But the market is already so very heavy against the dollar that it is going to take something really significant to push the currencies higher against it," Schoenthal said. The buying in outside markets drained some demand for gold, which has been a safe haven for nervous investors. At the COMEX, April gold closed $4 lower at $346.60 an ounce. "The wide $342-360 range is still intact and will continue to offer plenty of trading opportunities until a decision is reached on Iraq," said James Moore at TheBullionDesk.com. At the Chicago Board of Trade, weather forecasts erased more drought fears for this year's wheat crop in the Plains and prices fell to new nine-month lows. "Forecasts for rain over the next week contributed to the decline, the rains are expected to move into some of the driest areas," said Shawn McCambridge at Prudential Securities. Wheat for May delivery closed below $3 a bushel for the first time since July 7, falling 3-3/4 cents at $2.99-1/4. May soybeans gave back Tuesday's gains, closing 6 cents lower at $5.65-1/2. May corn edged 1/2 cent higher at $2.35-1/2 as exporter bids at the Gulf of Mexico stayed strong.