Oil Prices Ease, But Up 32 Pct in 2004 ($42.85/bbl)

Reuters ^ | December 30, 2004

[RWR8189]

LONDON (Reuters) - Oil prices fell on Thursday, after rising nearly $2 the previous session as two car bombs in Saudi Arabia rekindled fears over Middle East supply security, one of the factors behind this year's 32 percent rally.

In the last trading day of 2004 for U.S. oil (CLc1: Quote, Profile, Research) , prices were down 69 cents at $42.95 a barrel -- more than $10 higher than the beginning of the year, but $12 below the contract's all-time high of $55.67 a barrel on Oct. 25.

A 4.5 percent rally on Wednesday was also driven by a draw in weekly U.S. winter fuel stockpiles that kept the market anxious about whether inventories are high enough to comfortably last through the first quarter, forecast to be unusually cold.

In Saudi Arabia, suicide bombers tried to storm the kingdom's Interior Ministry and a security unit in the capital Riyadh on Wednesday, but were blocked and detonated their cars outside the gates, wounding at least 18 people.

It was the second major militant strike this month amid a surge of Islamic militant violence in which about 170 people have been killed, including Westerners, since May 2003.

Oil facilities and exports have not been affected, but traders remain anxious over the kingdom's 9.6 million barrels per day (bpd) of production -- more than a tenth of world supply. Osama bin Laden urged fighters loyal to his network to attack Gulf and Iraqi oil infrastructure earlier this month.

Oil rallied steadily this year as a surge in demand forced OPEC producers to pump at their highest level in 25 years, leaving little spare capacity to deal with unexpected outages and sharpening concern over oil supply security.

U.S. prices were up 70 percent from the start of the year at their Oct. 25 peak, but then abruptly halved those gains on signs that high fuel costs were beginning to weigh on economic growth.

WEATHER

A mild U.S. winter and year-on-year surplus in U.S. crude stocks have also prompted speculative funds to take money out of energy and pursue equity or money markets.

Falling prices spurred OPEC to trim 1 million bpd of excess supply from Jan. 1, hoping to prevent a rapid build in stocks they fear could drag prices lower when demand wanes after the northern winter.

Sustained falls in the value of the dollar -- reducing producers' purchasing power from oil sales denominated in the U.S. currency -- has strengthened OPEC's resolve to stop further price falls.

The oil price outlook for early next year hinges on U.S. weather, which will dictate heating oil demand in the Northeast, the biggest market for the fuel, dealers said. Most forecasters expect colder-than-usual conditions.

On Wednesday the U.S. Energy Information Administration said stocks of distillate fuel, including heating oil and diesel fuel, dropped by 800,000 barrels last week to 119.1 million barrels.

Lower-than-normal temperatures last week helped pull down heating oil stocks by one million barrels, leaving them a worrying 12.4 percent below last year, but milder weather this week may allow refiners to rebuild supplies, analysts say.

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12/30/04 Session Contract Detail for February 2005

	Last				42.85
	Open High				43.61
	Open Low				43.61
	High				43.80
	Low				42.78
	Settle				43.64
	Change				-0.79
	Open Interest				170205
	Volume				0
	Last Updated				12/30/04 04:48:02

[keysguy]

One of the oil guru guests on Kudlow and Cramer without Larry yesterday said that he thinks the new bottom may be around $37.00 per barrel.