Oil futures prices rose more than $1 a barrel in a volatile trading session Wednesday after a government report showed a sharp rise in U.S. crude supplies and tightening inventories of heating oil.
While the American presidential election generated market speculation about which direction oil prices were headed - up on a President Bush victory, down on a John Kerry triumph, some predicted - traders said Wednesday they were more focused on existing market conditions.
Oil production in the Gulf of Mexico is recovering seven weeks after Hurricane Ivan pounded the region and traders anticipate a boost in heating oil output before the month is up. But uncertainty about international oil supplies persists:
- 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 this month is a potential threat to the country's oil exports.
Moreover, after a sharp move lower in the past week, traders said there was a growing consensus that perhaps prices fell too far, too fast. The report of a reduced rate of production at a refinery in St. Croix, U.S. Virgin Islands, also pushed energy prices higher on Wednesday, traders said.
Light crude for December delivery traded as low as $48.65 per barrel on the New York Mercantile Exchange shortly after the Energy Department released its weekly petroleum supply report, then reversed course, rising $1.26 to $50.88 per barrel.
In London, Brent crude for December delivery jumped $1.01 to $47.56 per barrel on the International Petroleum Exchange.
"This market is showing some resiliency," said Tom Bentz, a trader at BNP Paribas Commodity Futures in New York.
December heating oil futures climbed 3.16 cents to $1.4238 per gallon on Nymex, where gasoline futures rose by 4.00 cents to $1.3277 per gallon. Natural gas for December delivery edged 18.5 cents higher to $8.752 per 1,000 cubic feet.
Nevertheless, a steady rise in U.S. oil supplies and a growing sense among traders that refiners will be able to produce enough heating oil this winter has pushed crude futures roughly 8 percent lower since the record Nymex closing price of $55.17 per barrel, set Oct. 22 and again on Oct. 26.
Adjusting for inflation, oil prices would need to surpass $90 per barrel to approximate the all-time high in 1980.
Early Wednesday, the chief executive of Russian oil giant Yukos, Stephen Theede, said the company is "close to insolvency" and that he will call an emergency shareholders meeting for next month to consider a possible bankruptcy. Theede's comments came after tax authorities served new, crippling back tax bills on Russia's floundering No. 1 producer Monday for nearly $10 billion, bringing the company's total tax debt to some $17.6 billion.
Meanwhile, saboteurs blew up an oil pipeline and attacked an oil well in northern Iraq on Tuesday. The damage was expected to hinder exports for the next 10 days. And in Nigeria, oil giant Royal Dutch/Shell Group of Cos.' first-round bid to block a strike targeting oil exports failed, again threatening the flow of crude from the world's seventh-largest exporter.
Despite Wednesday's run-up, Ed Silliere, vice president of risk management at Energy Merchant Corp., said he believes market sentiment has shifted strongly enough to push prices below $40 a barrel before the year is up. The financial incentive is strong for refiners to make as much heating oil as they can right now, Silliere said.
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 Tuesday that daily oil production in the region remains down by 13 percent, or 218,000 barrels a day - a significant deficit, but only half as bad as it was just a week or so ago.
The improving conditions there appeared to show up in government data released Wednesday. The Energy Department reported that commercially available stocks of crude oil rose by 6.3 million barrels to 289.7 million barrels last week, a level that is about 1 percent below year ago levels.
Still, distillate fuel inventories, which include heating oil, diesel and jet fuel, fell by 900,000 barrels to 115.7 million barrels, or 12 percent below last year.
Societe Generale's director of commodity strategy Michael Guido said oil prices fell early because the market has already factored in the Yukos affair and the insurgency in Iraq. 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.
But Bentz said the underlying issues in the market are proving hard to ignore: among them, strong global demand of about 82.4 million barrels a day that leaves only 1 million barrels a day of excess available production. That's anywhere from one-third to one-fifth of the buffer the industry had been accustomed to over the prior decade.