Fear of tight supplies sparks fresh rally before the holiday
By Myra P. Saefong, CBS MarketWatch
Last Update: 3:18 PM ET Nov 24, 1999
Agriculture Outlook
Futures News
NEW YORK (CBS.MW) -- Crude oil futures closed sharply higher Wednesday as
a second consecutive drop in crude supplies and a fifth consecutive
decline in distillate inventories ignited fears of tightening petroleum
supplies.
"Last night's report was positive" as total
inventories of crude oil and distillates were down,
said a research note from Lehman Brothers released
Wednesday.
Although there was an increase in gasoline
supplies, the rise was not completely unexpected,
the note said. "Overall, the report reinforces our
belief that the positive downward trend in
inventory remains intact."
On New York Mercantile Exchange, January crude
gained 43 cents to $26.87 a barrel, after soaring
to $27.10, a new nine-year high, early in the
session. December unleaded gasoline rose 1.6 cents
to 77.11 cents a gallon. December heating oil added
1.73 cents to 69.84 cents a gallon. See latest
commodity prices.
After the markets closed on Tuesday, the American
Petroleum Institute said distillate supplies fell a
greater-than-expected 3.48 million barrels last
week. The decline in supplies marks the petroleum
product's fifth-consecutive drop in as many weeks.
Crude oil inventories are now 35.9 million barrels
below year-ago levels, according to a report from Sam Albright of
Jefferies and Co.
Early Wednesday, the Department of Energy confirmed the sizable decline,
showing last week's distillate supplies down by 2.6 million barrels.
The API also said supplies of crude oil slipped 2.07 million barrels
during the week ended Nov. 19, on the high end of expectations for a 1
million to 2 million barrel drop. The government reported a 3.04 million
barrel decline. Total U.S. crude supplies now stand at 306.9 million and
303.9 million barrels, according to the API and Energy Department,
respectively.
Gasoline supplies were up 2.73 million barrels,
according to the API, but the Energy Department
said stocks fell by 1.3 million barrels. The
supplies have had "unseasonal draws for the past
several weeks," said Phil Flynn, an analyst at
Alaron.com. Analysts were expecting to see a 1
million to 2 million barrel decline.
Meanwhile, the Nymex closed early on Wednesday and
trading will be closed on Thursday and Friday for
the Thanksgiving holiday.
In regard to next week's trade, David Jesser,
managing director at Alaron.com's San Francisco
branch, said that the recent trading range will be
important and will "tip the hat" for the market's
intermediate direction.
"Relative to the past seven trading weeks, we've had a very small range,"
he said. "That to me is a market that is contracting in volatility and
ready to make another move."
"I would be using last week's trading range of $27.15 to $26.38 as signals
on the next direction of the market. If we get above $26.15, the market
will probably head into new highs, below $26.38, the market is probably
due for a correction towards $24 a barrel," Jesser said. The market is,
however, a bit over-done on the upside, he said.
This week's news on Iraq, U.N. deal
In other news, January crude oil soared Monday after Iraq rejected a
two-week extension of its "oil-for-food" program by the United Nations.
Phase six of the U.N.'s program, which allows Iraq to sell up to $5.26
billion worth of oil every six months to buy food, medicine and other
goods, had expired on Saturday.
Late Tuesday, Iraq's deputy prime minister, implied that his country could
accept a six-month extension of the U.N. humanitarian program, according
to Bridge News, pressuring crude to an intraday low of $26.35.
However, discussions on a potential six-month rollover of Iraq's
oil-for-food program are not expected to resume until at least Monday,
Bridge news reported.
Natural gas futures plunge
Meanwhile, December natural gas futures closed down
ahead of its own update on U.S. supplies.
December natural gas lost 6.9 cents to $2.12 per
million British thermal units on the New York
Mercantile Exchange. The contract expired at the
close of Wednesday's trading. January natural gas
has become the lead-month contract. January natural
gas closed down 4.5 cents to $2.33 per million
British thermal units.
On average, analysts expect the American Gas
Association to report a 5 billion cubic foot
decline or increase in U.S. supplies for the week
ended Nov. 19, according to a Bridge News survey.
On the other hand, a Thomson Global Markets report said the AGA report
"may be just a fuzzy memory by the time the market reopens on Monday, but
we're still looking for 20 (billion) to 30 billion cubic foot in net
withdrawals to add to the market's upside potential." A year ago, supplies
fell only 13 billion cubic feet, the report said.
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