Market watch: Near record drop in US oil stocks rallies oil prices

Surprising news late Wednesday of the second largest decline ever in US crude stocks triggered a rebound of benchmark oil prices in after-hours electronic trading on the New York Mercantile Exchange.

By the OGJ Online Staff

HOUSTON, Feb. 22
�Surprising news late Wednesday of the second-largest decline ever in US crude stocks triggered a rebound of benchmark oil prices in after-hours electronic trading on the New York Mercantile Exchange.

In its weekly report issued after that market had closed, the American Petroleum Institute said US crude stocks dropped more than 12 million bbl to a total 278.7 million bbl during the week ended Feb. 16. That was the second only to a decline of 14.9 million bbl on Jan. 1, 1999, officials said.

Some analysts viewed the unexpected news with suspicion, claiming that it must be based on erroneous data. But API said it had reports from several companies of delays in offloading crude imports because of weather problems along the Gulf Coast.

The report said home heating oil stocks increased by 2.46 million bbl and unleaded gasoline inventories were up 1.59 million bbl during the same period, however. API normally issues its weekly report on Tuesday, but it was delayed this week because of the holiday Monday.

The report triggered aggressive after-hours electronic trading that boosted the April contract for benchmark US sweet, light crude to $28.98/bbl and the May contract to $28.47/bbl.

During regular trading Wednesday, the April contract had closed at $28.53/bbl, down 28� for the day, as traders focused on decreased demand rather than imminent production cuts by members of the Organization of Petroleum Exporting Countries. The May contact for US crude also was down 35� to $28.13/bbl during regular trading on the NYMEX.

The March contract for unleaded gasoline lost 1.61� to 83.15�/gal Wednesday, while home heating oil for the same month dipped 0.76� to 74.11�/gal.

Natural gas for March delivery also dropped 13.2� to $5.15/Mcf Wednesday.

The American Gas Association reported withdrawals from US underground natural gas storage totaled 81 bcf during the week ended Feb. 16. That compares with withdrawals of 95 bcf the previous week, 136 bcf during the same period a year ago, and 97 bcf in 1999.

US natural gas storage is 308 bcf, or 24%, lower than a year ago at this point, said Robert Morris, senior energy analyst at Salomon Smith Barney Inc. If weighted temperatures match the 10-year average for the rest of this winter, he said, gas storage will be down around 800 bcf at the end of March.

That would buoy up natural gas prices this summer as the industry rebuilds storage from lower levels than in 2000.

In London, North Sea Brent crude futures also declined in a day of quiet, range-bound trading on the International Petroleum Exchange. The April contract for Brent closed at $26.37/bbl Wednesday, down 25� for the day, after trading at $26.25-$26.85/bbl. The March natural gas contract remained essentially flat at the equivalent of $3.73/Mcf.

Brokers said Wednesday the IPE oil market is seeking a stable floor, probably at $26/bbl after falling through support at $26.50/bbl. But the IPE often takes its cue from the NYMEX, where analysts are expecting a bullish session.

Meanwhile, the average price for the OPEC�s basket of seven crudes was down 25� to $24.61/bbl Wednesday.

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