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Crude oil rises on the prospect of a refinery slowdown

Crude oil rose for a fifth session, recording its biggest weekly gain since November, on expectations for growing demand in the US.

Federal Reserve Chairman Alan Greenspan told the Senate Budget Committee yesterday that the economy is beginning to show signs of recovering from recession. An increase in energy demand would come as refiners are cutting back production because of weak profit margins.

"A lot of what we are seeing is due to Greenspan, he helped move this party along," said Phil Flynn, vice president and senior market analyst at Alaron Trading Corp in Chicago. "The refinery cutbacks are taking place just as demand could be poised to rise."

Crude oil for March delivery rose US$0.29, or 1.5 percent, to US$19.99 a barrel on the New York Mercantile Exchange. The 7.1 percent rally this week was the biggest gain for crude since the week ended Nov. 9. Prices still were down 32 percent from a year ago.

In London, Brent crude oil for March settlement rose US$0.24, or 1.3 percent, to US$19.37 a barrel on the International Petroleum Exchange. Prices were up 5 percent this week.

US refineries last week ran at 88.4 percent of their capacity, down 1 percentage point from the week before, and the lowest rate since march 2000, the American Petroleum Institute said Wednesday. Valero Energy Corp and Sunoco Inc are among US refiners that are reducing output because of falling profits.

OPEC, along with non-OPEC producers including Russia and Norway, agreed to reduce supply by almost 2 million barrels a day, or about 2.5 percent, starting Jan. 1 to prop up prices. The group will review the success of these cuts at their meeting on March 15 in Vienna.

"The argument can be made that the economy has bottomed and an uptick in economic activity is in the offing," said John Kilduff, senior vice president of energy risk management at Fimat USA Inc in New York. "Once this rebound clearly emerges, the increase in energy demand will quickly intersect with OPEC's constrictive output policy, setting the market up for an extended rally."

The US Energy Department on Tuesday asked companies to submit proposals for providing as much as 22 million barrels of oil for the nation's reserves. Delivery will begin in April.

The bidding process is the first stage of the government's plan to add about 108 million barrels of oil to the US Strategic Petroleum Reserve, filling it to its 700 million-barrel capacity.
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