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New York, Sept. 9 (Bloomberg) -- Crude oil rose above $23 a
barrel for the first time since 1997 after a report showed that
U.S. inventories are at their lowest level in 20 months.
``Break out the champagne,' said Marianne Kah, chief
economist at Conoco Inc., the nation's fifth-largest oil company,
whose stock rose 10 percent in the past week. ``Prices rose on
the expectation that supplies would fall and now we're really
seeing them, big time.'
The nation's crude oil inventory fell by 2 percent last
week, triple analyst expectations, the American Petroleum
Institute said. Supplies now are at the same level they were
early last year, before surpluses began to mount. Prices have
almost doubled so far in 1999 as producers cut output to
eliminate the glut.
Crude oil for October delivery rose as much as 57 cents, or
2.5 percent, to $23.23 a barrel on the New York Mercantile
Exchange, the highest inter-day price since February 1997. Oil is
up 92 percent this year. In London, October Brent crude oil rose
as much as 68 cents, or 3.1 percent, to $22.95 a barrel on the
International Petroleum Exchange.
Oil Companies Gain
Soaring crude oil prices boosted oil company stocks. The
Standard & Poor's index of international oil companies rose as
much as 2.5 percent, the biggest increase in a month, while the
index of domestic integrated oil companies did even better,
rising 3.2 percent to its highest level since March 1998. Chevron
Corp. rose 3 7/16 to 97 7/8, Exxon Corp. gained 7/8 to 82 1/16
and Texaco Inc. rose 1 15/16 to 67 5/8.
Energy stocks have gained more than the Standard & Poor's
500 for the year, but shares haven't kept pace with the rally in
oil, Kah said.
``I suspect that everybody is in state of disbelief about
prices,' she said.
U.S. crude oil inventories fell almost 6 million barrels
last week as imports sagged and refinery production rose,
according to the report from the industry-funded API.
U.S. supplies now are at their lowest level since January
1998, the month when the Organization of Petroleum Exporting
Countries increased production by 10 percent.
The rally in crude oil pulled up other energy markets.
Heating oil for October delivery rose as much as 1.48 cents, or
2.5 percent, to 61 cents a gallon, a 23-month high. That gain
precipitated a rally in natural gas, a competing heating fuel.
Natural gas rose 10.6 percent, its biggest gain in more than a
year, to $2.89 per million British thermal units on the Nymex, up
27.8 cents.
Gasoline for October delivery rose as much as 1.6 cents, or
2.4 percent, to 68.30 cents a gallon on the Nymex.
Oil Headed Higher
Even at two-year highs, some analysts say crude oil prices
will keep rising as long as OPEC sticks to its output cuts.
``I increased my price target to $24 a barrel. It may be
going to $25 and it may not stop there under the circumstances
that OPEC holds the line,' said George Gaspar, managing director
of petroleum research at R.W. Baird & Co. in Milwaukee,
Wisconsin. ``If we have a cold winter, I am absolutely convinced
that we're going to see $25 crude.'
Hurt most in this year's oil rally are energy consumers,
from homeowners to trucking companies.
U.S. average retail prices for regular gasoline rose this
week to a two-year high of $1.242 a gallon, according to the U.S.
Department of Energy. Nationwide diesel fuel prices have risen
for 13 consecutive weeks and are now at their highest level since
April 1997. Average highway prices for diesel gained 0.4 cent in
the past week to $1.198 a gallon.
Part of the pain of higher prices was mitigated by energy
users who hedged their needs when prices were low, said Thomas
Gilhooley, vice president of corporate risk management at Stone
Bond Corp. in Houston. The hedging came amid this year's rally
and concern that there could be year-2000 computer malfunctions
that would disrupt supply at the end of the year.
``Some guys have caught this all the way up because they
want to make sure their tanks are full, in case something
happens,' Gilhooley said.
OPEC Promises
OPEC promised to cut production twice last year, but didn't
fully keep those promises and prices kept falling as surpluses
grew. Oil in New York dropped to $10.35 a barrel in December, a
12-year low.
As oil exporting countries' treasuries suffered, Venezuela,
Saudi Arabia and non-OPEC Mexico engineered a new round of cuts
in March and this time they gathered promises of strict
compliance by OPEC members.
In all, OPEC and non-OPEC oil producers have pledged to
reduce world output by more than 5 million barrels a day, or
about 7 percent of world supply. OPEC's record in adhering to
those promises was 95 percent last month, according to Bloomberg
estimates.
Supplies have also been crimped because many non-OPEC oil
companies abandoned exploration projects when prices fell. Recent
increases in demand, particularly from Japan and other Asian
countries, will keep inventories from rebounding, Kah said.
``Demand growth is coming back and the loss in non-OPEC
production is very severe. With the OPEC cutbacks, we're really
heading for a tight market.'
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