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OIL PRICES HIT A FRESH FOUR-MONTH HIGH
By Jonathan Leff

Reuters
March 2, 2005

http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=7791652

SINGAPORE -- Oil prices hit a fresh four-month high above $53 a barrel on Thursday as active fund buying and gasoline supply fears fueled a searing three-week rally that OPEC has yet to quell.

Refinery glitches in the massive U.S. oil market outweighed rising inventories on Wednesday, propelling prices 2.6 percent higher to above $53 a barrel for the first time since Oct. 27 last year. On Oct. 25, the market hit an all-time high $55.67 a barrel.

U.S. light crude was up 5 cents at $53.10 a barrel for a surge of almost 17 percent in just over three weeks, after hitting a new four-month high of $53.20 earlier in the day.

Gasoline futures were down 23 points at $1.4815 a gallon, having touched an all-time high of $1.4850 a gallon on Wednesday, when prices soared 5.8 percent.

A trio of unscheduled disruptions at Texas oil refineries triggered the rally, including a brief outage at a gasoline unit of BP's giant Texas City refinery and a fire at Western Refining Co.'s 107,000 barrel per day (bpd) refinery in El Paso.

The market becomes more sensitive to problems with gasoline production in the world's largest energy consumer with the approach of spring, as dealers anticipate rising motor fuel demand for the looming vacation season.

U.S. refineries ran at 89.3 percent of capacity last week, their lowest rate in four months, exacerbating fears that global product supplies could tighten significantly.

"There are big refinery turnarounds in Europe, the United States and Asia -- so if there's a blip in demand, where are you going to get the supply?," said Colin Tang, a Singapore-based oil trader with French investment bank Calyon.

Although U.S. data on Wednesday showed gasoline inventories 10 percent above last year's level, their highest in at least five years, traders are still worried about supplies due to steadily rising demand.

Crude oil stockpiles, which rose 2.4 million barrels last week, are almost 9 percent higher than this time last year, the U.S. Energy Information Administration reported.

But supplies of heating oil inventories slid 900,000 barrels to 40.2 million barrels in the week to Feb. 25, deepening the deficit from a year ago to 8 percent at a time when late-winter frigid weather continues to stoke demand in the U.S. Northeast.

"Cold weather will be around for another few weeks and that only adds fuel to the move up," added Tang.

OPEC BACKS OFF CUTS

With prices soaring, the Organization of the Petroleum Exporting Countries (OPEC) has backed away from talk of fresh production cuts when it meets in two weeks, despite the seasonal drop in second quarter demand, officials say.

But members are beginning to rally around a $40-$50 U.S. oil price as a possible new equilibrium for this year, effectively setting a much higher bar for defending prices.

Only Kuwait's oil minister, also OPEC president, has mooted the idea of possibly boosting production to cool prices, a move that could cause an unseasonally large build in inventories when demand ebbs after the northern hemisphere winter.

Oil prices have also been driven by a fresh influx of hedge and long-term fund money into commodities, where surging raw materials demand from China and solid growth in industrialized nations has stretched production capacity.

The U.S. dollar's sharp fall last week accelerated the inflow as rising energy markets offered a place for speculators to park their cash and OPEC producers were thought likely to pursue higher dollar-denominated prices to protect purchasing power.

"You have big macro funds who are buying and don't get out. At the same time oil producers aren't selling further back," said Calyon's Tang.

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CRUDE OIL TRADES NEAR FOUR-MONTH HIGH AS FUNDS INCREASE BETS
By Angela Macdonald-Smith

Bloomberg
March 3, 2005

http://www.bloomberg.com/apps/news?pid=10000087&sid=ahE8SvLIPGr4&refer=top_world_news

SYDNEY, Australia -- Crude oil futures traded at a four-month high after rising above $53 a barrel in New York yesterday as speculators increased bets on price gains and gasoline reached a record.

Investors are buying oil futures, betting that demand growth will outpace supply and push prices higher, said analysts including Commonwealth Bank of Australia's David Thurtell. Hedge-fund managers and other large speculators last week had their biggest bet on higher oil prices in eight months, according to the Commodity Futures Trading Commission.

"The funds are hoovering oil up," said Thurtell, a Sydney-based commodity strategist. "Maybe they still think it and other commodities are a buy."

Crude oil for April delivery fell 10 cents to $52.97 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 1:36 p.m. Sydney time. Yesterday, the contract gained $1.37, or 2.7 percent, to $53.05, the highest since Oct. 26. Prices were up 45 percent from a year ago.

Speculative long positions, or bets prices will rise, outnumbered short positions by 54,176 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report on Feb. 25. Net-long positions rose for a third week, by 22,548 contracts, or 71 percent, from a week earlier. The net-long positions peaked at 82,451 contracts in March 2004.

REFINERS

U.S. refineries used 89.3 percent of their capacity in the week ended Feb. 25, the lowest since October, when companies were performing repairs after a hurricane hit the Gulf of Mexico, an Energy Department report showed yesterday. Gasoline rose to a record on concern shutdowns at plants such as Lyondell-Citgo Refining LP's Houston facility may deepen production cuts.

"The refinery outage in Texas is making people think that while gasoline stocks are good, this refinery problem is a sign of things to come and maybe they won't be good for that much longer," Thurtell said.

Gasoline for April delivery yesterday rose 8.11 cents, or 5.8 percent, to $1.4838 a gallon in New York, the highest close since the contract began trading in 1984 and 30 percent higher than a year ago. The contract was at $1.4785 in after-hours trading.

"There has been a string of refinery disruptions when we need all of our refineries to be up and running," said John Kilduff, senior vice president of energy risk management with Fimat USA in New York. "There is a speculative element as well. There are too many dollars chasing too few barrels of oil."

SHUTDOWN

Lyondell-Citgo Refining, a joint venture between Lyondell Chemical Co. and Citgo Petroleum Corp., shut a unit at its Houston crude-oil refinery on March 1, state regulators said.

Lyondell Chemical spokesman David Harpole declined to comment on the report or the refinery's operations. The refinery can process 265,000 barrels of crude oil a day.

U.S. gasoline stockpiles climbed 973,000 barrels to 224.5 million in the week ended Feb. 28, the energy department report showed. Analysts expected an increase of 1.1 million barrels. Gasoline supplies have risen 10.4 percent in the past year.

Inventories of distillate fuel, a category that includes heating oil and diesel, fell 1.7 million barrels to 110 million, the report showed. Analysts expected a 1.2 million barrel decline.

DISTILLATES

"Distillates were down again and the market is just very nervous about that," Thurtell said. "The refinery outage in Texas is making people think that while gasoline stocks are good, this refinery problem is a sign of things to come and maybe they won't be good for that much longer."

U.S. crude-oil inventories gained 2.4 million barrels to 299.4 million, the highest since July. The median forecast of 12 analysts surveyed by Bloomberg was for a rise of 1 million barrels.

"The crude number was slightly bigger than expected while the gasoline and distillate numbers were right on the money," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "The most important thing about the numbers is that they are out of the way, which is allowing the funds to come in and buy crude with both hands."

Investors are "more comfortable" buying oil futures now the weekly Energy Department report has been released, said Mike Armbruster, co-founder of Altavest Worldwide Trading Inc. in Laguna Hills, California.

'STRONG BULL MARKET'

"There's less risk of a nasty surprise one way or the other" now the report is out, he said. "This is a very strong bull market and it's likely to go toward $60 before it slows down."

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, is concerned that rising inventories will lead to a decline in prices during the second quarter of the year. OPEC will discuss production targets at a meeting in Isfahan, Iran, on March 16.

The 11-member group's president, Sheikh Ahmad Fahd al-Ahmad al-Sabah, who is also the Kuwaiti oil minister, said in January OPEC may be willing to let global inventories get large enough to cover 56 days of demand before it cuts supplies. Al-Sabah said inventories covered 52 days of demand on Jan. 30.

"The higher-than-expected gain in crude oil inventories ensures that OPEC won't be increasing production when they meet," said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago.

--To contact the reporter on this story:  Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net.  To contact the editor responsible for this story:  Reinie Booysen at rbooysen@bloomberg.net.