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To: jeffbas who wrote (30270)	10/2/1998 2:34:00 AM
From: cherrypitter	Respond to of 95453

Narrowing Crude Spreads Could Signal Tighter Supplies New York, Oct. 1 (Bloomberg) -- Crude oil futures for immediate delivery could soon become more expensive than later months, heralding a possible end to a supply glut that sent prices tumbling. Oversupply on the world market led to crude's 23 percent drop over the past year and helped keep contracts closest to delivery on the New York Mercantile Exchange cheaper than other months. In part, the low prices for nearby months indicated that supplies were more than adequate for the immediate needs of refiners. Yet during trading yesterday and again today, the contract closest to delivery equaled prices of the next month out. Should crude settle with the closest month higher, it would be the first time that's happened since October of last year. ''It would basically mean there isn't a glut of inventory sitting around weighing on the prompt end of the market,'' said Mike Schnitker, an energy derivatives trader at Citibank N.A. in New York. ''The next two to three weeks will be key as to whether we are really there.'' Both the November and December Nymex contracts were recently trading at $15.90 a barrel on the Nymex. The current parity between the first two contracts compares with an average spread of 23 cents during the past two months, when oil for later delivery was more expensive. Oil prices have slumped during the past year because of excess global production and because demand was hamstrung by a mild winter in the Northern Hemisphere and slowing economies in Asia. Crude oil supplies in the U.S. have dropped during five of the past six weeks, according to the American Petroleum Institute, helping prices to rise. And while a series of storms in the Gulf of Mexico restricted the flow of offshore production and imports to refineries, efforts by major world producers to cut output to boost prices may finally be paying off. ''Our view is that (in the) longer term, crude should be trading at higher levels, because stocks have dropped so much,'' said Schnitker. Still, Schnitker joins other traders and even the Algerian oil minister in cautioning that much of the recent rise in prices could be due to the temporary disruptions of supply caused by the storms. When prompt futures months are more expensive than later months, the market is in a condition known as backwardation. That last happened in October 1997, when the U.S. sped an aircraft carrier to the Persian Gulf amid rising tensions between two major oil producing nations, Iran and Iraq. ''It is significant to see a backwardated market, to some it'll be a signal to buy'' crude oil, said Victor Yu, an analyst at Refco Inc. in New York. 11:11:20 10/01/1998 Any redistribution of Bloomberg content, including by framing or similar means, is expressly prohibited without the prior written consent of Bloomberg L.P. Any reference to the material must be properly attributed to Bloomberg News. The information herein was obtained from sources which Bloomberg L.P. and its suppliers believe reliable, but they do not guarantee its accuracy. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any securities or commodities.(C) Copyright 1998 Bloomberg L.P. BLOOMBERG, Bloomberg News, Bloomberg Financial Markets, Bloomberg Television, Bloomberg News Radio are trademarks, tradenames and service marks of Bloomberg L.