Oil prices slip amid lack of support

Published December 24, 2004

LONDON, Dec 23: World oil prices slipped slightly on Thursday after plunging more than one-and-a-half dollars a barrel the day before on an unexpected rise in US crude stockpiles.

New York's main contract, light sweet crude for delivery in February, fell 24 cents to $44 a barrel in early deals. The contract plunged $1.52 to close at $44.24 on Wednesday in the wake of the US inventory data.

In London, Brent North Sea crude for February lost five cents to $40.59 in late trading. It closed down $1.73 to $40.64 on Wednesday. "We are seeing a bit more weakness," said GNI-Man Financial trader Kevin Blemkin, adding that markets lacked support also due to thin trade with many players already on holiday for the festive season.

US crude oil inventories rose 2.1 million barrels to 295.9 million in the week ending December 17, the Department of Energy had said on Wednesday, defying expectations of a decline.

Distillates - mostly heating fuel and diesel - rose 600,000 barrels to 119.9 million, surprising analysts who had predicted a drop. Heating fuel stockpiles were flat at 49.9 million.

Gasoline inventories surged 1.8 million barrels to 211.4 million. The latest US Energy Department report came as the United States braced itself for possibly more severe winter weather, particularly in the north east region, which accounts for 80 per cent of the country's total heating oil consumption.

Barclays Capital analyst Orrin Middleton said the market had over-reacted to the latest stocks figures. "I think the market is getting a little bit silly in terms of the reaction that it is having," he said.

"The market has got into a silly season, over-reacting a little bit too much to each set of weekly figures that we are getting." But Middleton acknowledged there was a tight distillate market that could yet cause supply problems over the northern hemisphere winter.

"The real fear is if we get a prolonged cold snap in the USs, Europe or Japan and the market can't meet demand." Traders were meanwhile digesting news that community unrest in the Niger Delta had forced oil giants Shell and Chevron Texaco to suspend exports totalling 134,000 barrels of oil per day from Nigeria, Africa's largest producer of crude.

A Shell spokesman said the company had declared a "force majeure" to warn clients that it would not be able to meet export contracts from its Bonny terminal. Chevron Texaco said it was affected also by the shut down.

Nigerian fire fighters meanwhile battled a pipeline blaze on Thursday after an explosion killed at least 26 villagers, police said. Nigeria normally exports around 2.5 million barrels per day, but the wealth generated by the industry has been misused and three-quarters of the 130-million strong population live in abject poverty.

In another blow to production Thursday, it was announced that two oil platforms in the North Sea that were shut down last month due to a gas leak will not be permitted to resume production this week as Norwegian operator Statoil had hoped.

"The way it looks today we won't be able to give the green light for resuming production ... this week," the head of the Petroleum Safety Authority, Magne Ognedal, told AFP.

Norway, which is the world's third-largest oil exporter after Saudi Arabia and Russia and which normally has an average daily production of three million barrels, has seen its oil production reduced by some 205,000 barrels per day since the platforms were closed. -AFP

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