Oil prices spike to 12-year high. Falling U.S. reserves blamed
www.canada.com Scott Haggett Calgary Herald; with files from Herald News Services Thursday, March 13, 2003
Oil continued to rise Wednesday, reaching a 12-year high, but the shares of the companies that produce it haven't managed similar gains.
Crude oil on New York's Nymex Exchange rose $1.11 US to $37.83 US a barrel -- the highest since Oct. 16, 1990 -- as a key report said oil inventories fell unexpectedly last week.
The U.S. department of energy said American oil reserves have fallen to 269.8 million barrels, down four million barrels in a week and the lowest in almost 28 years.
The shortfall came as Venezuela continues to struggle to rebuild oil production after a general strike. The South American country had been the world's fifth-largest oil producer and is struggling to resume its pre-strike production of three million barrels a day. Lacking that output, U.S. imports fell 12 per cent for the week ended March 7 to 7.62 million barrels.
"It shows that the U.S. market is still undersupplied by about one million barrels per day," said Lawrence Eagles. an energy analyst with GNI-Man Financial in Belfast.
The report came as oil traders worry that supplies will be further disrupted if there's a war in Iraq. Conflict in the crucial Persian Gulf region would not only end Iraq's exports of 1.7 million barrels a day but could also threaten exports from other big producers such as Kuwait or Saudi Arabia.
War fears and the potential for war pushed up oil prices by nearly a third over the past six months. While the Organization of Petroleum Producers has pledged to boost production to make up for shortfalls during a war, the International Energy Agency said Wednesday the cartel could only increase production by 900,000 barrels a day, much less than Iraq now exports.
"The market is heading into a period of heightened uncertainty with low stocks and limited spare production and shipping capacity," the IEA, which represent 26 industrialized countries, said in its monthly oil report. "A further supply disruption would tax a system operating close to capacity."
While oil rose, natural gas continued to fall off two-year highs reached late last month as warmer weather was forecast to move into eastern North America and the U.S. Midwest. Gas on the Nymex fell 7.9 cents US to US$5.865 per million British thermal units. Canadian gas prices also fell, dropping 70 cents to $7.65 per gigajoule at the AECO hub in southeastern Alberta. Despite Wednesday's fall, natural gas prices are still up by more than 75 per cent over the past six months.
Despite high prices for oil and natural gas, Canadian energy stocks fell Wednesday as investors steered clear of the sector. Calgary's petroleum companies are now enjoying what analysts say will be the most profitable first quarter in the industry's history, but that hasn't been reflected in their share prices.
The S&P/TSX energy index, which accounts for the shares of most of Canada's major oil producers, fell 18.77 points Wednesday to 1217.74, up 1.8 per cent in the past six months.
The trouble, observers say, is that no one wants to buy energy stocks at a time when prices are high.
"People won't pay for peak earnings and peak pricing," said Kevin Nyysola, a portfolio manager with Investors Group in Winnipeg. "Why buy them now when you can buy them later for less."
Nyysola said the investors are pricing the shares of energy companies as if oil was trading at $23 US a barrel and gas was $4 US per thousand cubic feet.