Crude Oil May Rise As U.S. Supplies Near 29-Year Low

Crude oil in New York may rise to $50 a barrel next week as U.S. refineries increase purchases to refill inventories that are close to a 29-year low, according to a Bloomberg News survey of traders and analysts.

Crude oil in New York may rise to $50 a barrel next week as U.S. refineries increase purchases to refill inventories that are close to a 29-year low, according to a Bloomberg News survey of traders and analysts.

Twenty-four of 41 respondents, or 59 percent, predicted an increase in futures. Fourteen forecast a decline and three said prices would be little changed. Last week, 27 percent of respondents expected a rise and 47 percent a decline. Instead, oil rallied this week as it became clear that Hurricane Ivan did more damage than expected to offshore production.

“It looks like we’re entering a phase that will take the price to unbelievable highs,” said Chuck Hackett, a broker and analyst at Access Futures & Options Trading, a commodity futures brokerage in Woodlake, California.

Crude oil for November delivery rose to a record close of $48.88 a barrel on the New York Mercantile Exchange. The contract has gained 7.2 percent for the week. Oil futures are up 73 percent from a year ago.

The 59 percent of respondents that predicted a rise in prices next week is the biggest proportion in five weeks to agree on the direction oil prices are likely to go.

U.S. crude-oil stockpiles fell 9.1 million barrels to 269.5 million in the week ended Sept. 17, the U.S. Energy Department said. Supplies are 5.8 million barrels from being the lowest since September 1975. It was the first time since 1988 that inventories had dropped for eight straight weeks.

Imports Plunge

U.S. oil imports plunged 15 percent last week to an 18-month low of 8.43 million barrels a day, partly due to the production shutdowns and disruption of tanker shipment Ivan caused.

Remnants of Ivan strengthened this week into a tropical storm in the Gulf. The Louisiana Offshore Oil Port, the biggest U.S. oil terminal, shut two days ago because of high winds and rough seas and reopened late yesterday. The port, which handles about 1 million barrels of oil a day, was also shut from Sept. 13 to Sept. 18 because of Ivan.

The hurricane cut oil production by 9.6 million barrels since Sept. 13, according to a report from the Minerals Management Service yesterday, a bureau in the U.S. Interior Department that manages offshore oil, gas and mineral resources.

Production Down

Daily oil production was down 28 percent, or close to a half- million barrels, from normal levels, the agency said. Offshore platforms in the Gulf pump an average 1.7 million barrels a day, a quarter of U.S. output.

“Some production remains offline and we have yet to see Energy Department data indicating a reversal of the recent losses in imports, offshore output and refinery operations,” said Marshall Steeves, an energy analyst with Refco Group Inc. in New York. Oil will test last month’s record, which will be followed by “sustained momentum into the low $50s,” he said.

Heating oil may soon pull crude oil prices higher, analysts said. Heating oil futures rose to a record during the past two sessions on concern supplies aren’t sufficient to meet demand during the winter months.

Stockpiles of distillate fuel, including diesel and heating oil, fell 1.5 million barrels to 126.8 million barrels last week, the Energy Department said.

“The factors that are driving prices show no signs of disappearing,” said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. He cited low oil inventories, Russian production uncertainty, instability in Iraq and the possibility of terrorist attacks.

Concern over disruptions in Iraq, Russia and Venezuela helped push prices to records last month. OAO Yukos Oil Co., Russia’s biggest oil exporter, on Sept. 20 said cash shortages would force it to reduce exports by rail to China. Yesterday, China said it would pay in advance for the shipments.

Yukos Shipments

Yukos has threatened to cut shipments since July as it struggles to cope with $7.5 billion in tax bills and penalties for 2000 and 2001. Some analysts said the Yukos situation will be resolved soon, pulling prices lower.

“These stories from Yukos come in waves,” said James Cordier, president of Liberty Trading Group in St. Petersburg, Florida. “We believe the market is pricing in oil disruptions now as progress is made in clearing up these disruptions. The market may see some retracement.”

Bloomberg’s survey of oil analysts and traders, conducted
each Thursday, asks for an assessment of whether crude oil
futures are likely to rise, fall or remain neutral in the coming
week. This week’s results were:
RISE FALL NEUTRAL
24 14 3

To contact the reporters on this story:
Mark Shenk in New York at mshenk1@bloomberg.net
Sri Jegarajah in Singapore sjegarajah@bloomberg.net

To contact the editor responsible for this story:
Robert Dieterich at rdieterich@bloomberg.net

Bloomberg.com