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To: David Alon who wrote (3267)	5/9/2002 6:23:00 AM
From: David Alon	Respond to of 11633

Steep inventory declines, Mideast fears spur oil surge By PATRICK BRETHOUR 20:52 EDT Wednesday, May 08, 2002 Crude oil soared Wednesday to its highest price since mid-September, driven by unexpectedly steep declines in U.S. inventories and a renewed outbreak of violence in Israel. The New York Mercantile Exchange's benchmark June contract for light sweet crude rose as high as $28.05 (U.S.) a barrel before closing at $27.85, a gain of $1.22. Analysts said crude prices could soon breach $30 a barrel — past the $29.98 level reached on Sept. 17, in the immediate aftermath of the attacks on New York and Washington. Two suicide attacks in Israel, one of which failed, unnerved the oil market Wednesday, but it was bullish inventory data from the American Petroleum Institute that was the main impetus behind Wednesday's rally, analysts said. The API said late Tuesday that crude stocks fell by 4.495 million barrels to 321.093 million over the past week, double the expected decline of about two million barrels. The U.S. inventory of crude is considered to be a key indication of supply levels and future prices for petroleum products. The U.S. Department of Energy reported even sharper declines in crude stocks: a drop of 5.5 million barrels, below the 325.5 million barrels in inventory last May. Crude inventories are higher than this time last year, according to the API. But analyst Tom Bentz said that in the key PADD II geographic area — in the American Midwest — oil stocks fell by 1.5 million barrels in the last week, and are down by more than seven million barrels from last May. The state of supply in that region is especially important because the Nymex price is based on activity there. Crude inventories in the region are at their lowest levels in nearly a decade, said Mr. Bentz, senior energy analyst with BNP Paribas Commodity Futures Inc. in New York. He said crude prices will top $30 a barrel soon, and may head even higher if they quickly break through that level. Other analysts said any surge above $30 would be short-lived. "We may see prices get up there for a few days," said Tim Evans, senior energy analyst for IFR Pegasus in New York, adding that the market cannot establish a "sustainable equilibrium" at that level. He said the increase in gasoline inventories is one sign that any bull market will quickly run its course. The API said gasoline stocks rose 3.904 million barrels to 214.412 million because of declining demand. But Mr. Evans said the continued — and now escalating — unrest in the Middle East means that there will continue to be a substantial risk premium built into the cost of crude oil. A suicide attack in a Tel Aviv billiard club late Tuesday, the first in nearly a month, killed 15 Israelis, and cut short a visit by Prime Minister Ariel Sharon to the United States. In a second attack Wednesday, only the Palestinian bomber was injured after he set off explosives at an intersection near the northern city of Haifa. With the Israeli cabinet debating a range of options that include invading the Gaza Strip, or even deporting Palestinian leader Yasser Arafat, concern is building that the conflict could spread. "This makes people nervous that there could be a full-out war between Israel and the Arabs," said Phil Flynn, vice-president and senior analyst with Alaron Trading Corp. in Chicago. With files from Bloomberg