Sun, Mar 14, 2004 - Page 10 News List

Oil prices drop as US announces stockpile plans

REUTERS , NEW YORK

Oil prices ended lower on Friday after a US Senate move to bar shipments to emergency crude stockpiles prompted a retreat from recent year-highs, sending prices as much as 4 percent lower at one point.

US light crude settled 59 cents lower at US$36.19 a barrel. It had plunged to US$35.50, the lowest since Feb. 26, immediately after the oil stockpile news. Prices recovered in late trading due to a bout of pre-weekend short-covering.

A US Senate amendment, passed late Thursday night as part of the fiscal 2005 budget resolution, would cancel the delivery of 53 million barrels of crude oil for the US Strategic Petroleum Reserve (SPR).

The Bush administration has been bringing crude into the SPR with the aim of filling it to its maximum capacity of 700 million barrels by next year. The oil comes from energy companies which turn over a portion of the crude they drill on federal leases as royalty payments to the government.

Analysts were skeptical that the Senate's move, which aims to cut down petroleum prices by keeping more oil in the market, would succeed. They noted that it needs to be embraced by the House of Representatives, where there is Republican opposition to such a move.

They also said such measures to bring down current high gasoline prices may come too late.

"By the time any final bill is passed we could already be in the summer driving season," said Nauman Barakat, senior vice president at brokers Refco.

"The Senate move is more symbolic than anything else. The budget year 2005 starts in October," said Tim Evans, senior energy market analyst at IFR Energy Services.

The US government brushed aside the Senate action and said it will continue filling the SPR to capacity.

Analysts have warned that prices could fall heavily if speculative hedge funds which have driven oil's rally decide to take profits and pull out of record long positions.

That liquidation may have already begun, according to a report from the Commodity Futures Trading Commission, which said on Friday that net long positions from oil speculators was lower in the week ended March 9.

The SPR news eliminated earlier gains on revived security fears following Thursday's Madrid bombings, which further strengthened a market boosted by persistent concerns of a gasoline supply crunch in the US.

London's Brent crude fell 60 cents a barrel to close at US$32.33.

Bombings that rocked the Spanish capital on Thursday roiled financial markets and renewed concern that political instability could disrupt oil supply.

"The March 11 bombings in Madrid have only introduced even greater volatility in the markets. The rapid spike in prices to US$37 was similar to the market's reaction after attacks on the US in 2001," said Deutsche Bank in a report.

"However, higher prices did not persist for long back then as the market focused on the eventual implications for oil demand."

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