Oil Prices Fall on Rising U.S. Supplies
Associated Press | July 20, 2005
By BRAD FOSS
Oil prices fell by more than $1 a barrel on Wednesday after new government data showed rising U.S. supplies of diesel and heating oil and only a smaller-than-expected decline in crude oil inventories.
Earlier in the day, crude futures prices moved higher on concerns about production disruptions as Hurricane Emily slammed into Mexico's northeastern coastline and after a U.S. warning of possible terrorist attacks in Saudi Arabia.
Light sweet crude for August delivery fell $1.11 to $56.35 a barrel in afternoon trade on the New York Mercantile Exchange. September futures, which become the front-month contract beginning Thursday, traded 79 cents lower at $57.90 a barrel.
Heating oil futures fell by 3.71 cents to $1.593 a gallon while gasoline dropped by less than a penny to $1.67 a gallon.
In its weekly supply snapshot, the Department of Energy said stocks of distillate fuel, which include heating oil, diesel and jet fuel, grew by 2.3 million barrels to 122.7 million barrels, or 5 percent above year ago levels.
The nation's inventory of crude oil slipped by 900,000 barrels to 320.1 million barrels, or 7 percent above year ago levels, the agency said. Analysts said traders were expecting a decline of at least twice that size.
"It really was a bearish surprise to the market," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Flynn said that while the damage to oil production from Hurricane Emily appears to be temporary, the market will remain on edge until a clearer picture develops — and any time a big storm moves through the Gulf of Mexico. While he believes oil prices could theoretically head down toward $50 a barrel this summer, assuming no major supply snags, he maintains that traders will become jittery as the winter heating season approaches.
Flynn gave credit to the refining industry for cranking up production of distillate fuel at a time when it must also meet the peak demand for gasoline. "They've really built up supply in a short period of time," he said.
Gasoline inventories declined by 1.3 million barrels last week to 211.3 million barrels, about equal to year ago levels.
Since Sunday, Hurricane Emily has forced Mexican state monopoly oil producer Petroleos Mexicanos, or Pemex, to suspend daily production of nearly 3 million barrels of oil, 80 percent of which is exported to the U.S. market.
"Traders' worry over the impact of Hurricane Emily on Mexican oil production in the Gulf of Mexico has not dissipated," said oil analyst Victor Shum of energy consultants Purvin & Gertz in Singapore.
It was unclear when Mexican production would resume, but Pemex said Tuesday that staff and contractors were to report for work Wednesday on the Bay of Campeche, an area in the southern Gulf that is home to some of the company's most productive oil fields.
U.S. authorities said Hurricane Dennis, which hit the Gulf Coast earlier this month, interrupted the production of 5.29 million barrels of oil and 23.3 billion cubic feet of gas.
While this year's storms have not caused any major damage to the offshore producing and refining facilities in the Gulf of Mexico, traders fear a repeat of the damage caused by last year's Hurricane Ivan, which resulted in the loss of nearly 44 million barrels of oil production between September 2004 and February 2005.
Oil prices are about 37 percent above year-ago levels but still below the inflation-adjusted high of above $90 a barrel set in 1981.
Analysts say prices are sustained by a tight global supply cushion that many fear may not cope with rising demand, especially as rapidly developing China increases its appetite for energy. China's economy grew 9.5 percent in the first half of 2005 from a year earlier, the government said Wednesday.