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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Czechsinthemail who wrote (12230)	2/20/1998 1:50:00 AM
From: waverider	Read Replies (1) \| Respond to of 95453

More doom and gloom from talking heads, FWIW. With these kinds of predictions, I would hazard a guess that the bottom has been pinched. Diamond H ---------------------- Brimming oil tanks presage further price slump By Sam Arnold-Forster LONDON, Feb 18 (Reuters) - Brimming petroleum storage tanks are now so close to capacity in the West that they could trigger a slump on world oil markets to prices not seen in over a decade, traders and analysts said on Wednesday. If cargoes of crude cannot be squeezed into storage sellers could eventually be forced to dump oil at bargain basement prices -- possibly at under $10 a barrel for the first time since 1986, they said. Crude oil in single digits is ''certainly a possibility'' if only for a short period, said Adam Seymour, analyst at Morgan Stanley and Co International in London. ''Sub-ten Brent is a distinct possibility,'' added a senior trader at a U.S. investment bank. World benchmark Brent blend crude was valued at just $14.29 a barrel on Wednesday, a 46-month low. With little if any storage space available in the large consuming markets of the West the immediate outlook is very bearish although longer term tightness in storage capacity could be supportive, Seymour said. World oil inventories in the first half of 1998 are likely to build by a million barrels daily, Washington-based consultancy Petroleum Finance estimated this week. Oil traders, gathering for a week of oil industry meetings in London, agreed there is little if any tank space near the big Western consuming nations. They said a profound shift in trading patterns has caused the surge in stocks after several years of lower stocks as companies tried to reduce working capital tied up in stored oil. Last year oil futures sank deeply into contango for the first time in four years. The market is in contango when prompt oil costs less than forward delivery encouraging traders to place cargoes of oil into tank. ''With the contango everyone has been looking to store oil,'' said Scott Carter, senior oil trader at Tosco Petroleum in London. Traders buy cheap prompt cargoes and pay for storing them buy selling forward to hedge their purchase. The problem for sellers of oil comes when they find that there is no available tank space and they have to anchor cargoes at sea and incur huge costs. Signs of inflexibility are beginning to show up as the tanks fill up downstream of oil refineries causing log-jams in some oil company supply systems. This has been exacerbated by high refinery runs, say traders. Profit margins at Western plants have been healthy in recent weeks because crude oil has matched the losses in refined oil product prices. Adding pressure is unwanted oil heading to Western tanks because struggling Asian economies cannot afford U.S. dollar denominated crude oil. German consumer stocks of heating oil are running well above typical levels for this time of year say traders while all European oil stocks jumped nearly 2.5 percent last month, according to the Euroilstock foundation. In the Caribbean tanks are near capacity and expecting more oil, said industry sources while in the United States stocks are running about nine percent over year ago levels. Even Saudi Arabia, the world's largest seller of oil, has recently been placing around 170,000 barrels per day into storage. A big stock build have also been noted by the International Energy Agency, the West's oil ''watchdog'' in its most recent oil market report. Commercial, rather than strategic government owned, oil stocks in the main consuming nations finished the end of last year at the highest level in two decades barring 1994, it said earlier this month. Prices as well as stocks are close to levels seen in the winter of 1994. Then front-month Brent crude oil futures sunk to just below $13 compared to around $15 so far this month. On Wednesday morning is was around $14.30 but the cost of a cargo to a refinery was $1 lower. As tanks near capacity ''the buyers have a lot of power'' said Seymour.