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Oil Prices Climb After Dip in Inventories

"If we stay along this pace," Flynn said, "energy demand will hit another record next year."


Wednesday November 30, 2:15 pm ET
By Madlen Read, AP Business Writer
Oil Prices Rise After Government Reports Decline in Crude and Gasoline Inventories


NEW YORK (AP) -- Crude-oil futures rose Wednesday after the U.S. government reported drops in crude and gasoline inventories last week.
Heating-oil prices slipped, though, because of a big build in distillate inventories and warm weather in the Northeast United States -- supporting expectations that U.S. oil reserves are sufficient for the winter.

Still, it's unlikely heating-oil prices will fall much further, as a winter storm battering some Midwestern states heads for the Northeast.

"The weather that's coming at us now is earlier than we'd anticipated. That's going to keep heating oil from really sliding," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

After touching a low in Asian trading of $55.72 -- a level not seen for a front-month contract since June 13 -- light sweet crude for January delivery rebounded, trading 35 cents above Tuesday's close at $56.85 a barrel in late morning trading on the New York Mercantile Exchange.

In London, January Brent crude futures on the ICE Futures exchange rose 36 cents to $54.68 a barrel.

Heating oil slipped 0.47 cent to $1.6050 a gallon, while gasoline rose 1.79 cent to $1.4130 a gallon.

Crude inventories fell 4.2 million barrels to 317.6 million barrels in the week ended Nov. 25 from the previous week, but remain 10.3 percent higher than a year ago, the Department of Energy's Energy Information Administration said Wednesday.

Gasoline inventories slipped 500,000 barrels to 199.9 million barrels, 5 percent below last year's levels, while distillate inventories grew 3.4 million barrels last week to 127.9 million barrels. That's 4.7 percent above year-ago levels, but in the lower half of the average range for this time of year.

The build in distillate inventories -- which include heating oil and diesel -- was greater than traders had anticipated, but the decreases in crude and gasoline inventories were unexpected.

"It was a neutral-to-bearish report, given the build in distillates," said Fimat USA analyst John Kilduff.

Ten energy analysts surveyed by Dow Jones Newswires forecast a rise in distillate stocks of 595,000 barrels on average, a rise in gasoline stocks of 755,000 barrels, and a drop in crude by 220,000 barrels.

Estimates for diminishing natural-gas inventories and the harsh Midwest weather sent natural gas futures climbing.

Natural gas rose more than 33 cents at $12.07 per million British thermal units.

Oil prices have eased in past weeks as mild weather pervaded in northeastern U.S. states. The region consumes three-quarters of the nation's heating oil and is the biggest global market for that type of fuel.

Crude futures are 20 percent below their all-time high of $70.85 in late August after Hurricane Katrina battered the Gulf coast.

"It's a downward drift that's been going on to close to three months now," said Paul Horsnell, head of energy research at Barclays Capital in London. "And there's no dynamic that brings it around for the moment, so we can keep on drifting down."

Still, some analysts are concerned about growing U.S. demand for oil, which could drive prices higher in the long-term.

"We've been focusing on supply, supply, supply -- what we should be focusing on is demand," said Phil Flynn, analyst at Alaron Corp. in Chicago, pointing to Wednesday's EIA report, which said motor-gasoline demand grew to 9.2 million barrels a day over the last four weeks, about 1.3 percent above year-ago levels.

"If we stay along this pace," Flynn said, "energy demand will hit another record next year."

Associated Press Writer George Jahn in Vienna, Austra, contributed to this report.