[A-List] US economy: oil stocks low

["Michael Keaney" <michael.keaney@xxxxxx>]

US oil stocks evaporate to 27-year low

Heather Stewart
Thursday January 16, 2003
The Guardian

Crude oil stocks in America have run dangerously low, raising fears that the
government will be forced to tap its strategic reserves even before any
full-blown conflict with Iraq.

Inventories are down to their second-lowest level since records began in
1976 as the oil workers' strike in Venezuela holds back supply, the US
department of energy revealed yesterday.

Official estimates put the minimum stocks needed to run US refineries at
270m barrels a day but the DoE said there were only 272.3m barrels left in
the system, down 6.4m barrels from a week earlier.

The shortfall helped send oil prices soaring again yesterday, with Brent
crude for February delivery up 64 cents a barrel to $31.25 by the afternoon.

Paul Horsnell, oil analyst at JP Morgan, said that with US refineries
guzzling 15m barrels of crude every day there was just four hours worth of
slack in the system.

"Things are getting a bit tight if it gets below 300m barrels," Mr Horsnell
said. "Once you start running below that level, prices become more and more
sensitive even to minor changes in supply."

With the build-up to a conflict in Iraq accelerating, Mr Horsnell said,
there was considerable potential for interruptions in supply in coming
months. "What's alarming about this is that it's got nothing to do with
Iraq - it's got nothing to do with the Middle East," he said.

The US government holds a massive strategic petrol reserve in salt caverns
below Texas and Louisiana. Despite the spike in the oil price, industry
spokesmen insisted yesterday that it was not yet time to turn on the taps.

"I don't see a reason, really, to release the SPR," said John Felmy, chief
economist for trade body the American Petroleum Institute, arguing that
there was not yet a crisis. "We can't declare an emergency at this point."

Mr Horsnell said that, although the oil price would be high enough normally
to justify dipping into the SPR, the White House might be hoping to keep
back supplies until the outbreak of a war with Iraq, when prices might rise
further.

There is little sign of an early resumption of normal oil supplies from
Venezuela, the world's fifth-largest exporter, where striking workers are
trying to force president Hugo Chavez to call early elections by starving
the oil-dependent economy of cash. Cumulative loss of production is
approaching 100m barrels.

The oil markets were temporarily calmed last week by the prospect of a
compensatory increase in supplies from Opec, the oil producers' cartel. But
yesterday's jump in prices suggested traders are losing faith in Opec's
ability to help. Oil ministers from the Opec countries agreed to raise
production by 1.5m barrels a day at a meeting in Vienna last weekend.

Lawrence Eagles, at commodity analyst GNI, said the 270m-barrel floor was
probably an overestimate of the minimum amount needed to keep refineries
running, and just-in-time production methods meant a smaller margin for
error was sufficient.

"Regardless of whether that particular cut-off point is right, though, we
have clearly gone down to very low stocks," he added. Mr Eagles calculates
that reserves, plus the SPR and stocks of finished oil products, could keep
the US economy going for 77 days.