Crude futures continue to fall

Brad Foss, Associated Press Writer

Oil futures prices fell Nov. 3 after a government report showed U.S. supplies of crude rising sharply, allowing traders to shrug off the fact that inventories of heating oil are still tight.

“The psychology of the market has completely flipped,” said Michael Guido, director of commodity strategy for Societe Generale in New York, noting that prices have fallen about 10 percent in the past week as oil production in the Gulf of Mexico recovers and traders anticipate a boost in heating oil production before the month is up.

The Nov. 3 drop came even as uncertainty about international oil output swirled around the market.

The chief executive of Russian oil giant Yukos said the company is “close to insolvency.” Iraqi oil officials said exports from the north could suffer for 10 days as a result of an attack on a key pipeline. And in Nigeria a strike scheduled for later in November threatens the country’s oil exports.

Nevertheless, the reported rise in U.S. oil supplies and the growing sense among traders that refiners will be able to produce enough heating oil this winter kept crude futures on the downward trend that began last week.

Dropping prices projected

Light crude for December delivery traded 42 cents lower at $49.20 per barrel in Nov. 3 morning trading on the New York Mercantile Exchange, recovering from an intraday low of $48.65. A record Nymex closing price of $55.17 per barrel was reached Oct. 22 and again on Oct. 26.

The Energy Department reported that commercially available stocks of crude oil rose by 6.3 million barrels to 289.7 million barrels, about 1 percent below year ago levels. Distillate fuel inventories fell by 900,000 barrels to 115.7 million barrels, or 12 percent below last year. While the U.S. presidential election appeared to generate some market speculation about which direction oil prices would move depending on which candidate won — up on a Bush victory, down on a Kerry triumph, some predicted — the focus of trading Nov. 3 returned to fundamentals, in particular easing concerns about heating oil supplies.

“I don’t think anything is going to stop the refiners” from producing enough heating oil, Silliere said, brushing off the actual and potential supply disruptions globally. “That’s all forgotten when you build 6 million barrels in inventory.”

Stephen Theede, the chief executive of Russian oil giant Yukos, said Oct. 3 that the company is “close to insolvency” and will call an emergency shareholders meeting for December to consider bankruptcy.

Theede’s comments came after tax authorities served new, crippling back tax bills on Russia’s floundering No. 1 producer Nov. 1 for nearly $10 billion, bringing the firm’s total tax debt to some $17.6 billion.

Yuganskneftegaz, Yukos’ core unit that produces 1 million barrels per day, is expected to be sold to cover Yukos’ tax arrears.

In northern Iraq on Nov. 2, saboteurs blew up an oil pipeline and attacked an oil well. The attacks were expected to hinder exports for the next 10 days.

In Nigeria, oil giant Royal Dutch/Shell Group of Cos.’s first-round bid to block a strike targeting oil exports failed, again threatening the flow of crude from the world’s seventh-largest exporter.

Societe Generale’s Guido said the market had already factored the Yukos affair and the insurgency in Iraq into the price of oil. Moreover, economists around the world have noted in recent weeks that the surging cost of oil was slowing growth and cooling off red-hot demand.

Prices also have been declining as oil output in the Gulf of Mexico returns closer to normal levels following disruptions caused by Hurricane Ivan. The Minerals Management Service reported Nov. 2 that daily oil production in the region remains down by 13 percent, or 218,000 barrels a day.

Oil prices would need to surpass $90 per barrel to approximate the all-time high, in inflation-adjusted terms, set in 1980.