Market watch: May 25

Oil futures surged on international markets Wednesday with an American Petroleum Institute report that US crude stocks fell an unexpected 1.33 million bbl to a total inventory of 303.56 million bbl last week.


Oil futures surged on international markets Wednesday with an American Petroleum Institute report that US crude stocks fell an unexpected 1.33 million bbl to a total inventory of 303.56 million bbl last week.

The July contract for a blend of light, sweet crudes shot up $1.15 to close at $29.93/bbl on the New York Mercantile Exchange (NYMEX). The August contract also gained 90� to $29.18/bbl.

In after-hours electronic trading, the near-month contract again pushed past the $30 level, trading at $30.02/bbl overnight. The August contract also increased to $29.27/bbl.

That and other gains by NYMEX oil contracts this week have more than made up for Monday's sharp decline when traders overreacted to reports that OPEC might increase production if oil prices go too high.

The June contract for unleaded gasoline also surged to 98.02�/gal on the NYMEX, up 4.65� Wednesday, with the API report that reformulated gasoline inventories declined by 1.94 million bbl to a total 43.2 million bbl during the previous week. With the peak US driving season about to start with the three-day Memorial Day weekend, the market also was affected by the two-week shutdown of an Oklahoma refinery.

Because of the resulting shortage of reformulated gasoline, the Environmental Protection Agency has been forced in some areas to waive regulations mandating summertime use of that cleaner-burning fuel.

June futures for home heating oil also jumped 3.15� to 78.51�/gal Wednesday on the NYMEX, while the June contract for natural gas soared by 25.9� to $4.07/Mcf. On the IPE, natural gas futures also increased the equivalent of 5� to $3.39/Mcf.

The API reports also boosted the July position for North Sea Brent on international markets in London and Singapore.

On the International Petroleum Exchange in London, North Sea Brent closed at $28.61/bbl Wednesday, up $1.11 for the day after trading in a range of $27.70-$28.65/bbl. Prices continued to firm up in trading Thursday morning.

An impending US gasoline shortage prompted speculation on the Singapore market, with fund managers turning to oil trades to balance recent losses on a depressed stock market there. The June contract for North Sea Brent jumped by 96� to $28.61/bbl in Singapore Thursday, while the August contract rose 74� to $27.01/bbl.

OPEC's average price for its basket of seven crudes also increased by 92� to $28.30/bbl.

The new surge in oil prices is likely to prompt Energy Sec. Bill Richardson to continue pestering OPEC members for additional production, although cartel officials have said they will only be guided by market realities.

Energy analysts at Merrill Lynch & Co. recently reported that 8 out of 10 OPEC countries are already producing at near capacity. Those capacity restraints and Saudi Arabia's tighter compliance with its production quota -- 99% in April vs. 68% in March -- should sustain a strong market for oil in the face of growing world demand, analysts said.

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