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OIL FUTURES: Nymex Crude Ends At 19-Month Low Of $54.02 January 10, 2007

Posted by notapundit in Economic News.
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NEW YORK (Dow Jones)–Crude oil futures kept falling Wednesday and ended at a 19-month low of $54.02 a barrel after data showed a larger-than-expected rise in U.S. petroleum product stocks.

The Energy Information Administration reported that gasoline in commercial stockpiles jumped 3.8 million barrels last week to 213.3 million barrels, while inventories of distillate fuels, which include heating oil, climbed 5.4 million barrels to 141 million barrels.

The builds were larger than analysts’ expectations, and fed into the bearish sentiment that has gripped the market since the start of the new year. Analysts said the price decline was exacerbated by selling from speculators such as hedge funds.

“Just as the rise in prices during the bull market was often fed by a flow of financial buying that was in excess of any physical shortage, so too we have a flow of paper supply that magnifies the bearish news,” said Tim Evans, a Citigroup energy analyst in New York.

Light, sweet crude for February delivery on the New York Mercantile Exchange dropped $2.01 to a low of $53.63, the lowest level for a front month contract since June 2005. It closed $1.62 lower at $54.02, the lowest close since June 10, 2005.

February heating oil lost 3.10 cents to $1.5255 a gallon.

February RBOB gasoline slid 4.04 cents to $1.4292 a gallon.

Final settlements weren’t in yet.

“It was a very weak close,” said Tom Bentz, an analyst at BNP Paribas Futures. “I’m looking for prices to drop to at least $53, probably close to $52.”

Oil prices have declined more than 11% over the past two weeks, as speculators have bid down futures on expectations of lower winter demand and a belief that OPEC lacks the discipline to comply with its recent output cuts.

Adding to the selling pressure Wednesday was news that Russia and Belarus had resolved their dispute over oil supplies to Europe, with oil flow expected to resume later Wednesday.

Market watchers said that prices, while vulnerable to further declines, could easily turn around and move higher if sentiment shifts and speculators decide to cover their short bets.

“All the bad news is now in the market, and with close to 100,000-lot increase in open interest, I’m concerned,” said Mary Haskins, senior vice president at brokerage Man Financial in New York. ” We are cautious about a short covering rally later in the week, maybe going into the weekend.”

Evans of Citigroup said the steep losses could lead OPEC to announce a new output cut, leading to a sharp rally in prices and potentially creating a supply shortage.

OPEC agreed to two production cuts late last year, including a 500,000-barrel-day output reduction due to take effect Feb. 1.

Concern that the cartel is not complying with its output cut agreements has been a force behind the recent selloff.

If OPEC agrees to a third output cut, it will be its first three consecutive output cuts since 2001-2002, according to Evans.

“As we express our disappointment that OPEC has not cut production more radically, we’re inviting a third production cut now, and at some point that’s going to create such a shortfall on the physical side of the market that investors are bound to become aware,” Evans said.

By Masood Farivar, Dow Jones Newswires

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