Contrarian- Complacency means DANGER
Oil set for biggest weekly rise in 21 months
Cold weather, Yukos uncertainty, terror worries fuel gains
By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 12:55 PM ET Dec. 17, 2004
SAN FRANCISCO (CBS.MW) -- Crude futures topped $46 a barrel Friday and looked set to tally their biggest gain in 21 months as cold U.S. weather, fresh terrorism threats, a bankruptcy filing by Russian oil giant Yukos, and OPEC's impending output cut combined to fuel concerns about a tightening of global inventories.
At last check, crude for January delivery traded at $45.80 a barrel, up $1.62, or 3.7 percent, on the New York Mercantile Exchange. At its intraday high of $46.20, the contract reached a level not seen since Dec. 1. Prices closed at $40.71 last Friday and are headed for the their biggest one-week gain since March 2003, according to Phil Flynn, a senior analyst at Alaron Trading.
Among the petroleum-products contracts, January heating oil rose 7.48 cents to stand at $1.456 a gallon -- a far cry from last week's close of $1.2257 -- while January unleaded gas tacked on 4.22 cents to $1.18 a gallon, up from last Friday's close of $1.0799.
"This is panic short covering," said Agbeli Ameko, a managing partner at energy-forecasting firm Enercast.com, singling out the cold weather forecasts and threats from al-Qaida leader Osama bin Laden targeting oil-industry infrastructure as the two biggest reasons for the price strength.
"There is not much activity or volume, meaning that this rally is based on thin activity as many traders have closed their book for 2004," he said.
When prices dropped from their record highs above $55 in October, many investors thought they'd fall back to the $30 level, said John Person, president of National Futures Advisory Services.
"Then OPEC spoiled that party," he said. The cartel agreed last week to cut the actual oil production from 10 of its 11 members by 1 million barrels starting Jan. 1 to better meet its output quota of 27 million barrels per day.
He also cited tension over uncertainty surrounding Yukos as well as an audiotape attributed to bin Laden, Person said. Moreover, colder weather appears likely to put "a serious dent" in heating-oil supplies," he said.
All in all, "the theme for energy traders is to be on guard," Person said.
Oil market on heightened alert
On the terrorism front, the audiotape surfaced Thursday with a man identified as bin Laden calling on militants to stop the flow of oil to the West.
"Threats against the oil industry are putting oil speculators' concerns about carrying positions into the weekend on the front burner," said Flynn.
Meanwhile, "the Yukos affair continues to provide for regular market jolts," said John Kilduff, an analyst at Fimat USA, adding that "Russian oil production could decline" because of the attempted final wind-down of the company.
The auction of Yukos' (YUKOY: news, chart, profile) largest subsidiary to Gazprom will proceed as planned on Sunday, an official at the Russian Federal Property Fund, which is conducting the auction, was quoted as saying Friday by the Associated Press. See full story. Yukos filed Wednesday for bankruptcy protection in the U.S. See full story.
All of these threats to output and supplies follow a U.S. government report on Wednesday that showed distillate inventories, which include heating oil, fell unexpectedly last week. See full story.
"Heating-oil prices will dominate the petroleum market and tend to move crude prices as well," said James Williams, an energy economist at WTRG Economics. Distillates are about 2 million barrels below the low end of the normal range of 121 million to 139 million barrels, he said.
Natural gas rallies
Also Friday, natural-gas futures turned sharply higher after falling close to a one-week low in the previous session. Traders were unwilling to sell ahead of the weekend in the face of cold weather forecasts for much of the nation.
January natural gas rose 45 cents, or 6.4 percent, to trade at $7.45 per million British thermal units in New York.
"The market is more than likely to exit the withdrawal season with the same heavy surplus it entered with," but "forecasts calling for continued chilly temperatures in the consuming regions next week should buttress the market somewhat," said Fimat's Kilduff.
On Thursday, the Energy Department said U.S. natural-gas stocks fell by 61 billion cubic feet for the week ended Dec. 10, a little less than some analysts had expected. Total stocks now stand at 3.150 trillion cubic feet, up 300 billion cubic feet from the year-ago level.
In the equity market Friday, energy indexes were mixed, with the Philadelphia Oil Service Index ($OSX: news, chart, profile) managing a modest gain.
Among metals futures, gold futures edged higher, trading some $6 above last week's close. See Metals Stocks.
The Reuters/CRB index, a broad measure of commodity futures markets, was up 0.9 percent at 285.62 points.
Market Data 
Markets 
AI
