By OGJ editors
HOUSTON, Feb. 12 -- Crude oil future prices reached their highest level in 26 months on the New York Mercantile Exchange Tuesday upon market jitters about a potential war with Iraq and expectations of a sharp fall in US oil inventory numbers.
The NYMEX March contract for benchmark US light, sweet crudes jumped by 96¢ to $35.44/bbl Tuesday, with the April position up by 77¢ to $34.47/bbl. During trading Tuesday, the March contract soared by over $1 to $35.60/bblthe highest level since November 2002before settling for the day at $35.44/bbl.
Traders had pulled back on prices Monday, but the market gained momentum Tuesday with heightened alerts about possible terrorist attacks in the US and Britain. The alerts followed the release of an audio tape recording that might be from Osama bin Laden, head of the Al Qaeda group believed responsible for terrorist attacks on the US and elsewhere. Authorities worked to identify the voice on the tape.
The recording called Iraqi President Saddam Hussein an infidel, but US President George W. Bush nevertheless continued to push his case that there is an alliance between Saddam and Al Qaeda.
Bin Laden is believed responsible for the Sept. 11, 2001, terrorist attacks upon the US.
Bush argues that Iraq must be disarmed of any weapons of mass destruction because it could provide such weapons to terror groups.
Unleaded gasoline for March delivery gained 2.84¢ to $1.06/gal. Heating oil for March delivery also settled at $1.06/gal, up 1.33¢ for the day on NYMEX. Traders attributed the heating oil price rise to cold weather on the East Coast and also to firm support from crude oil and natural gas prices.
The March natural gas contract rose 12.5¢ to $5.98/Mcf Tuesday on NYMEX. Analysts estimate Thursday's weekly Energy Information Administration inventory report will show underground storage withdrawals of 135-185 bcf.
"There is currently 1.521 tcf in storage, and with continued cold, historic low storage levels could result this year. The last EIA report showed that stocks slipped to (a level that is) 811 bcf, or 35%, below a year ago, and 287 bcf below the 5-year average," said Enerfax Daily analysts Wednesday.
US crude oil inventories also have fallen, to a 27-year low, and low Midwestern crude inventory levels imply that potential exists for additional price spikes, said Paul Horsnell of J.P. Morgan Securities Inc. in London.
"US crude oil inventories have fallen below 270 million bbl for the first time since 1976. The damage was done by a hefty 1.2 million b/d fall in imports down to just 7.2 million b/d, combined with a slight uptick in refinery runs. The most grievous situation is in the Midwest (Petroleum Allocation for Defense District 2, or PADD 2). Inventories in that area have fallen to 52.5 million bbl, below what we would consider to be the minimum operating requirements and representing another reason for March WTI to spike sharply higher in its last week before expiry relative to the April contract (WTI is priced at Cushing, Okla., within PADD 2)," Horsnell said.
In London, the March contract for North Sea Brent gained 67¢ to $32.37/bbl on the International Petroleum Exchange. The day's high was $32.48/bbl, and the low was $31.58/bbl.
The March natural gas contract gained 15¢ to the equivalent of $2.92/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes fell 3¢ to $31.35/bbl Tuesday compared with $31.38/bbl Monday.