Crude Oil Jumps 4% on Saudi Production Cuts, Rise in Demand for
Gasoline
Crude Oil Rises on Saudi Sales Cuts, Gasoline Demand (Update3)
(Adds trader's comment beginning in 7th paragraph.)
New York, March 17 (Bloomberg) -- Oil prices climbed
4 percent as increasing demand for gasoline and sales cuts by
Saudi Arabia sent crude to its first close above $15 a barrel
since October.
Saudi Arabia, leader of a global campaign to reduce
supplies, will cut sales to most customers by 12 percent next
month, an official of state-owned oil company Saudi Aramco said.
Crude rose earlier after a report of the biggest weekly decline
in U.S. gasoline inventories in five months.
''This is a sure sign that the Saudis are being active in
enforcing'' an agreement last week by producers to cut world oil
supplies by 2.7 percent, said Victor Yu, an analyst at Refco inc.
in New York. ''The bigger the cut in production made by the
Saudis, the more credible the agreement is.''
Crude oil for April delivery rose 59 cents, or 4.1 percent,
to $15.05 a barrel on the New York Mercantile Exchange, the
highest closing price since Oct. 7.
Prices have risen 25 percent this year on speculation that
producers will cut output enough to ease a global supply glut.
Prices still are 44 percent below the highs of 1997, before
weakening economies in Asia eroded demand.
Some traders are skeptical producers will keep their
promises.
''We haven't see output reductions yet,'' said Chris
Schachte, a trader at GSC Energy Corp. in Atlanta. ''We may not
see crude stay above $15 a barrel.''
In London, May Brent crude rose 59 cents to $13.27 a barrel
on the International Petroleum Exchange, the highest since
Oct. 9.
Saudi Arabia has promised to reduce oil output by 585,000
barrels a day as part of wider cutbacks of about 2 million
barrels a day pledged by more than a dozen countries. The cuts
are to be ratified at the Organization of Petroleum Exporting
Countries meeting in Vienna next week.
Oil prices also were buoyed by signs that Russia, the
world's third-largest producer, will join in the output-reduction
effort, traders said.
Announcement Tomorrow
Russian Fuel and Energy Minister Sergei Generalov said
Russia will reduce its exports of both oil and oil products, the
Russian news agency Interfax reported.
Generalov said the size of the cuts would be disclosed
tomorrow. Russia's cuts probably will be far smaller than those
planned by Saudi Arabia and other big producers, based on past
experience.
A report late yesterday from the American Petroleum
Institute showing a greater-than-expected 3 percent drop in U.S.
gasoline inventories last week sent gasoline futures to a five-
month high and contributed to crude's gains.
Strong demand for gasoline during the warm-weather driving
season would help revive a market reeling after mild winter
weather reduced U.S. demand for heating oil.
''If demand is this good this early in the season then what
will it be like later?'' said Michael Fitzpatrick, a trader at
Fimat USA Inc. in New York.
Gasoline for April delivery rose 2.53 cents, or 5.7 percent,
to 47.20 cents a gallon on the New York Mercantile Exchange, the
highest closing price since Oct. 6. April heating oil rose 1.91
cents, or 5.1 percent, to 39.68 cents a gallon, the highest since
Oct. 7.
Gasoline inventories fell 6.98 million barrels last week to
226.2 million barrels, the biggest drop since the week ended Oct.
9, the API said after markets closed yesterday. The largest drop
expected by eight analysts surveyed by Bloomberg News before the
report was 2.5 million barrels.
Gasoline Demand
The big inventory drop came as demand for gasoline, as
calculated from other figures in the API report, surged 17
percent to 9.02 million barrels a day, the highest rate in 10
weeks. U.S. gasoline demand is strongest during warmer months,
when more motorists take to the roads.
A separate report today from the Department of Energy showed
a smaller 3.8 million-barrel decline in gasoline inventories.
Distillate fuel inventories, which include heating oil, fell
a larger-than-expected 4.5 million barrels, the API report
showed. The declines in petroleum product supplies more than
offset a rise in crude oil inventories, which was concentrated on
the West Coast, considered a less important region by futures
traders because it's not connected by pipeline to the rest of the
country.
''Stockpiles of crude are now substantial as the API report
showed,'' GSC Energy's Schachte said. ''Inventories are at their
highest since November.''
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