Crude-oil futures may extend last week's drop of 14 per cent, as a warmer-than-usual start to winter in the eastern United States allows refiners to build up inventories of heating fuel, a Bloomberg survey shows.

Thirty-two of 62 traders and analysts, or 52 per cent, said oil prices will decline this week. Thirteen expected prices to gain and 17 said oil would be little changed.

US supplies of distillates, including heating oil and diesel, rose 20 per cent last week, the biggest jump in almost five months, the US Energy Department said on December 1. This week, demand in the Northeast, which burns 80 per cent of the nation's home heating oil, will be 22 per cent below normal, Weather Derivatives Inc of Belton, Missouri predicted.

"This winter has been a lot less harsh than expected and at this time of the year heating oil is the focus," said Prabhas Panigrahi, managing director of equity research at EKN Inc, a New York-based brokerage. "We'll see further increases in supplies."

US supplies of distillates rose 2.3 million barrels two weeks ago, the biggest gain in four months.

"Momentum will be downwards as the market readjusts to the realization that the heating-oil market isn't as tight as expected," said Daniel Hynes, a resources analyst at the Australia & New Zealand Banking Group Ltd in Melbourne.

Rising inventories

Crude-oil inventories rose for a 10th week and now exceed year-earlier supplies by 3.2 per cent. Oil imports have averaged 10.3 million barrels a day over the past two months, 4.5 per cent higher than in the same period last year. Petroleum product imports in October and November averaged 2.9 million barrels a day, a 24 per cent increase over a year ago.

Crude oil for January delivery tumbled US$6.90, or 14 per cent, to US$42.54 a barrel on the New York Mercantile Exchange this week. Prices have plunged 24 per cent from the October 25 peak of US$55.67 a barrel, which was the highest in the 21 years the contract has traded in New York.

Seven of the past 10 surveys correctly predicted the market's direction.

Heating oil for January delivery plunged 16 per cent to US$1.24 a gallon in New York this week, the fifth decline in six weeks.

Temperature drop

Some traders cautioned that a sudden drop in temperatures could reverse crude's decline as distillate inventories at 117.9 million barrels, are still 10 per cent less than a year ago.

"We need about 130 million barrels to be comfortable," for winter, said Chris Mennis, owner of oil trader New Wave Energy in Aptos, California. Stockpiles needed to rise by about 4 million to 5 million barrels a week and "if we don't see some big builds, that may bring some buying back into the market," he said.

Distillate inventories fell for nine weeks after Hurricane Ivan hit the Gulf of Mexico in September, interrupting shipments, shutting refineries and damaging production facilities.

"I expect prices to continue to ease next week," said Lorraine Tan, Singapore-based director of research at Standard & Poor's Investment Services. "Upside risks would come from a sudden change in weather," or supply disruptions, she said. "I do not expect OPEC (Organization of Petroleum Exporting Countries) to trim quotas yet."

OPEC meeting

OPEC will meet in Cairo on December 10 to discuss its production quotas and target prices. Plunging oil prices and the declining value of the dollar may push OPEC to take steps that could cause futures to rise, some analysts said.

OPEC produced 30.61 million barrels a day in October, according to Bloomberg data. It was the most oil OPEC has pumped since November 1979, US Energy Department figures show.

On December 2, OPEC's benchmark price, based on seven crude-oil grades, fell 6.9 per cent to US$35.42 a barrel, the lowest since July 13. The group has a formal goal of keeping its benchmark price between US$22 and US$28 a barrel, and it may consider a higher range at the Cairo meeting.

Declining prices may prompt OPEC countries to cut their output, said Tor Kartevold, an oil analyst at Statoil ASA, Norway's largest oil company. "It would make sense to cut oil production before doing anything with the quotas."

(China Daily 12/06/2004 page12)