Oil Prices Rise Above $100 After Government Reports Drop in Crude Supplies

Jan.03, 2008 in Market Outlook

One day after oil prices briefly touched $100 for the first time, the Energy Department’s Energy Information Administration said crude inventories fell by 4 million barrels last week, much more than the 1.7 million barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.On the other hand, inventories of distillates, which include heating oil and diesel fuel, rose by 600,000 barrels, countering analyst expectations that distillate supplies would fall by 600,000 barrels. And supplies of gasoline rose by 1.9 million barrels, more than the 1.3 million-barrel increase analysts had expected.

Light, sweet crude for February delivery fell 27 cents to $99.35 a barrel on the New York Mercantile Exchange after earlier rising to $100.09, a trading record. Prices fluctuated in light trading as investors struggled to interpret the EIA data.

“Any surprises (in the report) are more the result of false expectations as opposed to anything truly remarkable in the data,” said Tim Evans, an analyst at Citigroup Inc. in New York, who added that crude inventories often fall this time of year, while distillate and gasoline supplies typically increase.

February gasoline fell 2.29 cents to $2.546 a gallon on the Nymex, and February heating oil fell 1.09 cents to $2.7295 a gallon. February natural gas fell 0.02 cent to $7.848 per 1,000 cubic feet.

In London, February Brent crude fell 1 cent to $97.83 a barrel on the ICE Futures exchange.

At the pump, meanwhile, gas prices rose 0.3 cent overnight to a national average of $3.052 a gallon, according to AAA and the Oil Price Information Service. Retail gas prices have rebounded in recent weeks, following oil’s lead.

Crude’s move to $100 a barrel prompted Indonesian officials to announce plans to ask OPEC to boost output to bring down oil prices, Dow Jones reported. While that may be tempting to some Organization of Petroleum Exporting Countries members, many analysts think high prices will themselves do the trick by cutting demand.

“It is unlikely the cartel will decide to increase output quotas ahead of the normally low-demand second quarter,” said Addison Armstrong, director of exchange traded markets at TFS Energy Futures LLC in Stamford, Conn., in a research note. “Furthermore, the U.S. economy is slowing, the result of which is likely to be lower demand for oil.”

Indeed, there are already signs demand is slowing. Gasoline demand fell last week by 160,000 barrels, and rose only 0.1 percent over the last four weeks compared to the same period last year. Analysts consider year-over-year demand growth of under 1.5 percent to be tepid.

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