LONDON, 2 December 2004 — World oil prices fell nearly $3 a barrel yesterday, shedding 6 percent, as a larger-than-expected build in US heating stocks soothed worries about a winter fuel deficit.
US crude by 1830 GMT was down $2.81 a barrel at $46.32 a barrel, off 5.7 percent. London Brent crude, benchmark for European imports, fell $2.86 to $42.65 a barrel, off 6.3 percent.
The US Energy Information Administration (EIA) said distillate stocks, including heating oil and diesel, rose 2.3 million barrels in the week to Nov. 26 to 117.9 million barrels.
The consensus projection from a Reuters survey was for a 1.4-million-barrel build. “We were looking for a build in heating oil, but not so much in diesel and here we got both,” said Ed Silliere, analyst at Energy Merchant in New York. The inventory build unwound some of the renewed gains in oil prices that saw US crude briefly top $50 a barrel on Monday after touching a two-month low at $45.25 in mid-November. Crude set a record peak above $55 at the end of October.
Winter concerns are not over yet though. US distillate stocks remain 13 percent lower than a year ago, compared to a 14 percent year-on-year shortfall a week ago.
The EIA data showed heating oil stocks rose one million barrels to 49.9 million, closing the gap versus last year to 14 percent from a 16-percent deficit last week.
Mild weather in the US Northeast, the biggest heating oil market worldwide, has helped soften distillate demand just as refineries lift output after seasonal maintenance. US-wide refinery operations rose 1.1 percent to 94 percent of capacity, the EIA report said.
The EIA report put US crude stocks up 900,000 barrels to a comfortable 293.3 million, 3.5 percent higher than a year ago, with OPEC supply running at a 25-year high of over 30 million barrels daily. Prices were helped lower by comments from OPEC member Algeria. Algerian Energy and Mining Minister Chakib Khelil said OPEC was likely to keep oil output limits unchanged when it meets next week, adding that the cartel would not worry about yesterday’s price fall. “I think we will maintain the situation as it is,” he said of his expectations for Organization of the Petroleum Exporting Countries policy at its Dec. 10 meeting in Cairo. “Because stocks are going up there is a reaction in the market, and that is normal,” said Khelil. “I am not worried and I don’t think anyone else is worried.”
On Monday, Minister of Petroleum and Mineral Resources Ali Al-Naimi said the Kingdom had plans to increase oil production capacity to 12.5 million barrels per day from the current 11.0 million over the next few years.
Refineries, too, were stretched, the EIA said. “While US refinery utilization routinely exceeds 90 percent, utilization rates in Europe and Asia have grown to around 90 percent or more,” it said.
Also, recent increases in output were mostly in heavier and more sour crude oils, which required more processing and resulted in a “growing mismatch” between crude supplies and demand for refined product. Finally, tanker capacity was tight.
“With Asian countries becoming more dependent on Middle East, and even West African, crude oils, the average length of a tanker voyage is increasing, which, in essence, is adding to the demand for tankers,” the EIA said. “As a result, transportation costs have increased, which has helped crude oil prices remain relatively high.”