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Oil Prices Rise After U.S. Supply Report

Posted on: Wednesday, 24 August 2005, 12:00 CDT

Oil prices rose Wednesday after the release of a U.S. supply report that showed shrinking gasoline stocks and rising inventories of crude oil and distillate fuel.

Traders were also watching an approaching storm that could enter the Gulf of Mexico later this week.

Crude oil for October delivery rose 44 cents to $66.15 a barrel in midday trade on the New York Mercantile Exchange. The front-month contract is nearly 50 percent higher than a year ago and hit an all-time high of $67.10 on Aug. 12.

In its weekly petroleum supply report, the Energy Department said domestic inventories of gasoline fell by 3.2 million barrels last week to 194.9 million barrels, or 7 percent below year ago levels.

U.S. supplies of crude oil grew by 1.8 million barrels to 322.9 million barrels, or 13 percent above year ago levels, the agency said. The supply of distillate fuel, which includes heating oil and diesel, increased by 1.4 million barrels to 132.5 million barrels, or 4 percent above last year's level.

The mixed picture did little to calm nerves on energy markets.

"The inventories have built a little bit, but that doesn't mean an outage somewhere doesn't cause price spikes," said oil broker Tom Bentz at BNP Paribas Commodity Futures in New York.

On London's International Petroleum Exchange, October Brent crude futures rose 18 cents to $64.83 a barrel.

Nymex heating oil gained 1.56 cents to $1.835 a gallon while gasoline rose nearly 1.7 cents to $1.875 a gallon.

With the summer driving season drawing to an end, market focus is expected to shift to heating oil as demand for this product usually peaks in the winter.

Stoking bullish sentiment was Tropical Storm Katrina, which formed Wednesday morning in the Bahamas and could reach hurricane strength before hitting the coast of Florida later this week. The National Hurricane Center said the storm is expected to cross the state and head into the Gulf of Mexico, dropping a foot or more of rain.

Oil companies have shut down facilities in the Gulf as precaution against storm damage.

Ken Hasegawa, commodities broker at Tokyo-based Himawari CX, said " the emergence of the new storm is supporting gains."

But other analysts said the storm worries may be overblown.

"As with most storms, we think the fear factor is exceeding the likely impact on production here," said Timothy Evans, senior energy analyst at IFR Energy Services in New York.

The market has also been rattled lately by production outages in Ecuador, due to worker unrest, and in Iraq, where insurgents shut down most of the country's electricity grid on Monday.

"The markets are focused on event risk, and the fact that any small disruption in production, due to the thinness of refinery capacity, could lead to a short-term hiccup," said Joe Duarte, a Dallas-based independent energy analyst. "The market is clearly in a different zone now, being driven by momentum more than fundamentals."

Iraqi exports have since begun returning to normal, and the situation in Ecuador also has stabilized even amid building tensions over U.S. religious broadcaster Pat Robertson's suggestion that Venezuelan President Hugo Chavez be assassinated.

Washington has distanced itself from Robertson's comments.

Venezuela is the world's fifth-largest crude exporter and has the largest proven reserves outside of the Middle East. Chavez is an outspoken critic of President Bush and has irritated U.S. officials with his fiery rhetoric against American "imperialism" while moving closer to Washington's enemies Cuba and Iran.

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Associated Press Writers Brad Foss in Washington and En-Lai Yeoh contributed to this report from Singapore.

Source: Associated Press/AP Online

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