LONDON, 6 January 2005 — Oil prices skidded lower yesterday after a US government report showed rises in stockpiles of heating fuel, assuaging worries about winter supplies in the world’s biggest consumer.
New York’s main contract, light sweet crude for delivery in February, fell 51 cents to $43.40 a barrel at about 1700 GMT. At one point the contract fell to as low as $42.60. In London, the price of Brent North Sea crude oil for delivery in February lost 34 cents to $40.70 a barrel.
“The US had quite a cold snap toward Christmas, but there wasn’t really that much pressure on the stocks,” said Veronica Smart, an analyst at the Energy Information Center, a British-based consultancy firm.
“Analysts estimate that we have a potential for another cold snap for only another six weeks, so a lot of fears subsided over any shortage this winter. “That explains the bearish outlook in the market despite the drop in crude stocks,” she said.
The Department of Energy reported distillates inventories — mostly heating fuel and diesel — rose 2.0 million barrels to 121.1 million for the week ending Dec. 31. Heating fuel stocks alone increased by 1.2 million barrels to 50.1 million. Gasoline stocks were also up 2.0 million barrels at 214.3 million.
However, crude stockpiles fell 3.3 million barrels to 291.8 million. “Distillates (heating oil and diesel) inventories are back in the normal range for the time of year,” said Deutsche Bank analyst Adam Sieminski.
“This, (combined) with the impact of the mild US weather has taken one of the key supports out of the market. Crude stockpiles were lower than anticipated, but everything else (heating oil and gasoline) were as expected,” he added.
Crude oil prices had risen sharply a day earlier on forecasts of colder weather in the United Sates following a mild spell.
Predicted colder temperatures raised concerns about low supplies of heating fuel during the northern hemisphere winter. “There’s been conflicting reports on the weather in the States,” Investec analyst Bruce Evers said, ahead of the release of the stocks data. “The weather in the States got a little bit warmer, so people think that heating oil stocks (levels) are okay. And then you read a report that the weather is going to get a bit colder towards the weekend, so prices go a bit higher,” he said, referring to Tuesday’s price rises.
Limiting losses for oil prices, meanwhile, was continuing violence in Iraq and confirmation from Saudi Arabian Minister of Petroleum and Mineral Resources Ali Al-Naimi that the oil kingpin has carried out its pledge to cut output by 500,000 barrels a day from Jan. 1, analysts said.
Saudi Arabia’s move to cut output was part of an overall pledge last month by OPEC to reduce production by one million barrels a day from the start of 2005 to bring the cartel closer to its official output ceiling of 27 million barrels.
The Organization of Petroleum Exporting Countries had initially allowed the overproduction to help bring down oil prices as supply shortage fears propelled them to record highs above $55 a barrel last October.