ENERGY STOCKS
Oil prices may get boost over Iraq
Export outlook, OPEC production boost gasoline
By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 7:53 PM ET May 31, 2001
NEW YORK (CBS.MW) -- Energy futures prices may be on the rise Friday following a fresh threat by Iraq to withhold its oil exports.
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At the United Nations, the Security Council agreed to extend for one month its oil-for-food program that lets Iraq sell crude on the world oil market even as it remains under UN-imposed trade sanctions. But Iraq, which is demanding a six-month extension, rejected the latest deal, designed to give the UN time to restructure the sanctions.
Iraqi Ambassador Mohammed al-Douri reiterated Iraqi threats to cut the production of oil should the Security Council eventually approve a U.S.-British sanctions proposal. See related story.
In earlier futures trading highligts, June unleaded gasoline closed at $1.0632, up 2.2 cents. June heating oil gained 0.35 cent to 77.95 cents a gallon on the New York Mercantile Exchange.
The July contracts, which became the front-month contracts for the petroleum products at the close of the day's trading, settled lower. July unleaded gasoline fell by 0.04 cent to 95.58 cents a gallon. July heating oil fell 0.48 cent to 77.36 cents a gallon.
If OPEC doesn't increase production quotas when it meets on Tuesday, then the market "would almost certainly tighten," Lynch said.
Traders remain focused on next quarter's supply and demand balance, said Mike Lynch, chief energy economist at DRI-WEFA, a unit of financial services firm Global Insight.
The oil cartel appears "willing to take the risk that prices rise instead of the smaller risk that inventories will get out of hand," he added.
Gasoline supplies head higher
The latest data from the American Petroleum Institute and the Energy Department revealed that gasoline inventories rose by 1.6 million and 4.3 million barrels, respectively.
On average, analysts polled by Bridge News had expected a rise of only 1.2 million barrels.
The API also said stocks of reformulated gasoline, which are used in many major cities in the U.S., climbed by 1.8 million, while the Energy Department posted a 2.3-million-barrel rise.
"Just as the summer driving season kicks off, additions to gasoline stocks lead to some relief in the gasoline market," Thorsten Fischer, an economist at Philadelphia, Pa.-based Economy.com said in a weekly note.
Still, any "year-on-year surplus will disappear quickly," Fischer said, if it turns out that there are problems with reliability of refinery operations.
This, he said, stands as a "key issue" with the nation's refineries running virtually flat out. The API's measure of refinery production rose slightly to 95.3 percent of capacity from the prior week's reading of 95.2 percent.
Distillate supplies, which include heating oil, increased by 1.9 million barrels and 2.2 million barrels the API and Energy Department said, more than triple expectations for a rise of 600,000 barrels.
Crude inventories fall unexpectedly
Refiners' struggle to keep up with the demand for gasoline during the summer driving season helped prompt a decline in last week's crude supplies.
Crude inventories as of the week ended May 25 fell unexpectedly -- by 3.98 million and 1.8 million barrels, according to the API and Energy Department, respectively. Analysts surveyed by Bridge News had forecast a rise of 1.2 million barrels on average.
However, July crude shed 18 cents to $28.37 a barrel in sympathy with gasoline's earlier price decline.
In related news, July natural gas declined by 6.7 cents to $3.914 per million British thermal units following a 99-billion-cubic-foot rise in last week's stocks. See related story.
Oil issues strengthen
Amid the uncertainty over OPEC production and quota compliance, Iraqi supplies and demand concerns, key oil indexes closed mostly higher.
Fortis Group oil analyst Laurent Lequeu believes that even though there is a risk to oil company earnings this year given the uncertainties, the sector will still remain on the upside.
"After the relative strong performance of the sector these last weeks, we maintain our neutral rating on the sector," he said in a research note, emphasizing favor in shares of Royal Dutch Shell (RD: news, msgs, alerts) and ExxonMobil (XOM: news, msgs, alerts) .
Oil company shares reflected the positive outlooks. The Oil Service Index (OSX: news, msgs, alerts) gained 1.6 percent to 126.45 as shares of Nabors Industries (NBR: news, msgs, alerts) tacked on $1.41 to trade at $50.85.
Meanwhile, the CBOE Oil Index (OIX: news, msgs, alerts) climbed by 0.1 percent to 341.87. Shares of Kerr-McGee (KMG: news, msgs, alerts) tacked on $1.01 to close at $69.67.
And the Amex Natural Gas Index (XNG: news, msgs, alerts) rose by 0.7 percent to 246.92. Shares of EEX Corp. (EEX: news, msgs, alerts) climbed 36 cents to close at $4.45.
Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.
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