Oil Prices Rise on Production Fears

by Alan Fein

New York - Oil prices rose Wednesday following the Energy Department's Supply report showing that gasoline demand had increased, coupled with lingering production fears in the Middle East.

Crude oil for April delivery was up 56 cents per barrel at $61.97 in late afternoon trading in New York, after rising as high as $62.30 earlier. Unleaded gasoline rose over 3 cents a gallon to $1.62 while heating oil futures were up 2.4 cents at $1.74 a gallon. The US Department of Energy reported that crude oil and gasoline stocks rose last week while distilled fuels, desiel and heating oil, fell.

While the Department of Energy's report indicates that supplies of oil and gasoline are plentiful, commodity traders still showed concern over last week's market jitters following the bomb attack on Saudi Arabia's largest oil processing facility and rebel attacks in Nigeria that shut in 20 percent of its daily oil production. Adding to production fears was Iran's situation over its nuclear plans still being up in the air. But what really put the market on alert was a GCC report that said crude oil prices would be higher based on unsettled political issues in the Middle East.

The Department of Energy's report said that US crude oil inventories rose 1.6 million barrels to 328.3 million barrels in the week ended Feb. 24. Gasoline inventories edged up 300,000 barrels to 225.9 million barrels, while distillate inventories dropped 1.5 million barrels to 134.1 million barrels. Even though distillate stocks were lower they still remain 14 percent above year-ago levels.

The report noted that US gasoline demand over the past four weeks was 9 million barrels a day, 2.5 percent above last year's levels, and that gasoline production declined last week from the prior week.

The news on gasoline inventories didn't affect traders but the drop in production levels did as March production is an early indicator to the market in front of the summer season when consumption levels rise.

This spring is the phase-out of the controversial additive MTBE from the United States' gasoline supply and changes refiners need to undertake for the transition to gasoline blended with ethanol may give rise to local imbalances between supply and demand and associated price surges during the change. For those reasons, traders are expecting a rally in gasoline futures.