Oil futures continue surge - Inventories decline as nation readies for war

www.oaklandtribune.com108341241236,00.html Article Last Updated: Thursday, March 13, 2003 - 7:26:01 AM PST By Mark Shenk - Bloomberg News

NEW YORK -- Crude oil futures closed at a 12-year high for the third time in two weeks after an Energy Department report showed an unexpected decline in U.S. inventories.

Supplies last week fell 1.4 percent to 269.8 million barrels, the department said. Inventories were 16 percent lower than a year earlier and close to a 28-year low. Analysts surveyed by Bloomberg expected an increase of about 1.5 million barrels. The decline came as the U.S. prepares to attack Iraq, which pumps about 3 percent of the world's oil.

"This is a big problem," said John Kilduff, senior vice president of energy-risk management at Fimat USA Inc. in New York. "You don't want to have low oil inventories when the country is about to go to war."

Crude oil for April delivery rose $1.11, or 3 percent, to $37.83 a barrel on the New York Mercantile Exchange, the highest closing price since Oct. 16, 1990, when the Iraqi occupation of Kuwait cut off exports from both countries.

Prices reached $39.99 a barrel during trading on Feb. 27, the highest intraday price since October 1990, when futures rose to a record $41.15.

In London, the April Brent crude-oil futures contract rose 62 cents, or 1.9 percent, to $33.91 a barrel on the International Petroleum Exchange.

Crude-oil imports fell 12 percent to 7.62 million barrels a day in the week ended March 7, the weekly report on petroleum inventories, production and imports said.

"This is as bad as it gets," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, which markets gasoline and heating oil to local distributors. "Supplies are very tight."

Analysts had expected that rising imports from Venezuela and Saudi Arabia would send inventories higher.

A strike in Venezuela had been limiting shipments to the U.S.

Venezuela pumped about 3 million barrels of oil a day before the strike began in December and now is pumping 2.7 million barrels a day, according to the Venezuelan government.

Striking oil workers say production is closer to 1.9 million barrels a day.

"The decline in imports makes me dubious about Venezuelan output claims," Kilduff said. "Their production can't possibly be what they claim if our imports are down so much. We are their main customer."