Knight-Ridder/Tribune Business NewsWednesday, May 20, 1998 3:48AM ------------------------------------------------------------------------ May 20 (Houston Chronicle/KRTBN) via NewsEdge Corporation - Oil prices plunged to their lowest levels in almost 10 years Tuesday, pushed down as traders were forced to sell oil rather than store it because oil storage tanks in the Midwest are full.
Light, sweet crude for delivery in June closed on the New York Mercantile Exchange Tuesday at $12.96 per barrel, down $1.11 per barrel. It was the lowest the near-month contract has closed since Oct. 7, 1988, when the contract closed at $12.94. During the trading day, the June contract traded as low as $12.50 per barrel.
Tuesday was the last day of trading for the June contract. Trading often is volatile on such days, when market fundamentals give way to hectic activity over such transactions as short sales, in which traders agree to sell oil at a certain price on a specific date. If the price of oil falls in the interim, they make a profit.
Storage tanks in Cushing, Okla. -- the site where oil futures contracts are settled and the oil is delivered -- were reported at capacity Tuesday. Some of the 125 tanks at Cushing can hold as much as 500,000 barrels of oil.
"Crude stocks in the Midwest are extremely high," said John Saucer, oil analyst with Salomon Smith Barney in Houston. "People just don't have room for these barrels, so that puts sellers in a very difficult situation."
The July benchmark crude oil contract was off only 10 cents per barrel Tuesday, closing at $15.01, something analysts and industry observers took to indicate that the price collapse will be short-lived and was more than likely a symptom of the near-month contract expiration.
"It is a Nymex (New York Mercantile Exchange) roll cycle. We had the same thing happen at the end of last month when we got down to about $13," said Ken Miller, senior principal at the Houston office of Purvin & Gertz, an international oil consulting firm.
He expects the near-month contract to rebound in the next few days to levels closer to $15, where the contracts for the so-called "outer months" were trading Tuesday. For example, the benchmark crude oil contract for delivery in September closed Tuesday at $16.06.
Petroleum products also fell on the Merc Tuesday, although only modestly. June heating oil fell 0.04 cent to 40.95 cents a gallon; June unleaded gasoline fell 0.02 cent to 50.03 cents a gallon.
Natural gas for delivery at the Henry Hub in June was flat, rising only 1.5 cents to close at $2.149 per thousand cubic feet on the Merc. That contract expires May 27.
Oil prices could take another dip today as traders react to high inventory figures nationwide that were released Tuesday.
U.S. crude oil inventories last week increased to 353.1 million barrels, up 8.788 million barrels compared to the week ended May 8, according to the American Petroleum Institute's weekly survey of crude oil and refined products stockpiles.
Crude oil inventories are running 38.41 million barrels ahead of where they were at this time last year.
Also on Tuesday, it was announced that Russia will be participating in the June 24 OPEC meeting as an observer to the negotiations, similar to the role Mexico played in the March meeting in Vienna, Austria.
The Organization of Petroleum Exporting Countries struck an unprecedented production cutback agreement that included cutbacks from Mexico and Norway. The cartel is expected to again strive to roll back production in June because the March cuts are not perceived as having been sufficient to shore up prices.
Russia, one of the world's top five oil exporters, has already agreed to reduce oil exports by 61,000 barrels per day as its contribution to market stability.
Good question, but I'm not sure. Phillips has limited exposure in Asia via chemicals which will slow a little; however, oil & gas may pick up. I copied this news release down this morning.
Thursday June 4, 6:48 am Eastern Time
Asia markets mixed after U.S. dip, oil prices surg
(Adds oil price surge)
By Stuart Grudgings
SINGAPORE, June 4 (Reuters) - A hefty fall in U.S. stocks overnight forced some key Asian markets into early retreat on Thursday, but the overall picture was mixed as investors drew breath after recent heavy losses.
Shares in Hong Kong and Taiwan fared worst in the wake of Wall Street's one percent slide, each falling by more than two percent in early trade.
Other markets continued to take comfort from the yen's grip above 139 to the dollar, however, and crude oil prices roared higher on prospects that the oil ministers of key producing countries would meet to discuss a possible cut in global output.
New York Mercantile Exchange (NYMEX) July crude futures were trading at $15.41 per barrel, up 60 cents from the New York close overnight.
The surge came after reports that the oil ministers from Saudi Arabia, Mexico and Venezuela would meet later on Thursday, probably in Amsterdam, to discuss the possibility of cutting output by at least 500,000 bpd.
Although Phillips core business is oil & gas, Phillips is diversified with other business interest that will buffer this anticipated issue. This is typical trading for month ending contracts. Gas brokers manipulate oil prices, just like money makers shorting stocks. Don't over react to this. It will be short lived. Summer gas usage is expected to be at an all time high. Global oil producer are going to agree on production rates to maintain profitability.