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Oil prices hit pre-Iraq war highs

Crude futures prices surged Wednesday, leaping to heights not seen since just before the U.S.-led war in Iraq, as government inventory data revealed oil inventories had again dwindled to the lowest level ever recorded in December.
/ Source: The Associated Press

Crude futures prices surged Wednesday, leaping to heights not seen since just before the U.S.-led war in Iraq, as government inventory data revealed oil inventories had again dwindled to the lowest level ever recorded in December.

January light, sweet crude futures on the New York Mercantile Exchange settled 46 cents higher at $33.35 a barrel, after touching $33.77 — a front-month high not seen since March 17, when crude prices reached $36.40 a barrel.

That mid-March high was dashed soon after, as well-financed speculators, such as commodity funds, sold off contracts to lock in profit on the eve of the Iraq war, which began March 20.

Wednesday on London’s International Petroleum Exchange, February Brent settled at $30.59 a barrel, up 62 cents, after hitting a high of $30.90.

U.S. commercial crude oil inventories fell 5.1 million barrels, or 1.8 percent, to 272.8 million barrels in the week ended Dec. 12, amid a drop in crude imports, the Energy Department reported Wednesday morning.

That set a new low for December oil stocks since the Energy Information Administration began collecting inventory data in 1982.

The decline greatly exceeded expectations, as analysts surveyed earlier this week by Dow Jones Newswires had estimated a draw in crude inventories of only 1.5 million barrels.

In the last four reporting weeks, crude inventories have posted heavy draws totaling 21.2 million barrels, according to the EIA.

Crude stocks are now 2 percent below a year ago and 9 percent below the five-year average. They are hovering just above the crucial 270-million-barrel guidepost the National Petroleum Council issued as an indicator of low oil supplies.

“If inventories stay this low, there’s no limit to what prices can do,” said Tom Bentz, a New York energy broker for BNP Paribas, an international bank that provides brokerage services.

And as crude prices close the gap to $34 a barrel, those betting prices will fall may be shaken out of the market, he said.

“You start closing over $34, you could get as high as $40 very quickly,” Bentz said. “You close over $34, you may be getting some of the nonbelievers to start believing.”

While there weren’t enough believers to breach the $34-a-barrel mark Wednesday, oil traders did drum up the momentum to hit a new intraday high just before settlement, making it clear they weren’t averse to the idea.

“The numbers bode well for (high) prices this winter,” said Scott Meyers, a New York energy analyst for Pioneer Futures Inc. “I don’t think anything can change that, unless we have long periods of mild weather.”

The U.S. Northeast’s winter weather usually brings with it a greater demand for heating fuels, such as natural gas and heating oil refined from crude.

Also feeding crude’s spike Wednesday were EIA data showing heating oil stocks tumbled 3.5 million barrels to 52.4 million barrels — about 6 percent below last week.

January heating oil rallied the most on the Nymex, settling up 2.34 cents, or 3 percent, at 94.18 cents a gallon after touching a high of 95 cents a gallon.

Like crude, front-month heating oil prices haven’t been seen at these levels since March 17. At that time, heating oil reached 95.80 cents a gallon before closing at 91.57 cents a gallon.
January gasoline gained 1.61 cents, or 2 percent, to settle at 91.94 cents a gallon after reaching a high of 92.70 cents a gallon.

Front-month gasoline prices haven’t been seen at these levels since August 29, when prices spiked ahead of the Labor Day holiday, which traditionally sees higher demand for gasoline amid increased motorist activity. At the time, gasoline touched $1.1050 a gallon before closing at $1.0930 a gallon.

However, gasoline’s jump Wednesday wasn’t seen as much more than a rise in sympathy with bullishness in heating oil and crude, analysts said.

Looking ahead, natural gas data due out Thursday morning from the EIA may be pivotal to prices on the petroleum complex, market participants said.

If natural gas inventories fall, it could send crude prices above $34 a barrel and send products, particularly heating oil, higher as well. But if they rise, it could chip away the day’s gains.

Natural gas for January delivery surged 24.6 cents to settle at $6.993 per 1,000 cubic feet.

Natural gas and the petroleum markets trade on somewhat different fundamental factors, but movements in one market can affect the other, as some users have the ability to switch between natural gas and heating oil.

Analysts surveyed by Dow Jones Newswires earlier this week estimated a natural gas draw of 128 billion cubic feet on average last week.

Following inventory declines that exceeded estimates in each of the last two weeks, another such surprise this week would lend considerable weight to the theory that underlying weather-adjusted demand has for some reason risen, or that production has declined more than expected.