Steve Quayle News Alerts

December 19, 2002
By Myra P. Saefong, MarketWatch.com

NEW YORK -- Oil futures held above $30 a barrel and gold prices soared as high as $355 an ounce Thursday on growing concern that a U.S. war with Iraq is near.

"A rally in commodity prices suggest that people are reallocating their money to safe-haven assets, said Masatoshi Sato, a senior strategist from Mizuho Investors Securities.

"Both oil and gold are likely to move higher before the U.S. actually starts war ... although they would likely be sold again once the war starts. A rise in these commodity prices also suggests a distrust in the U.S. dollar," Sato said.

On the New York Mercantile Exchange, January crude climbed to $30.80 a barrel, up 36 cents. The February contract, which becomes the lead-month contract at the end of the day's session, added 47 cents to $30.90 a barrel. Brent crude for February delivery added 54 cents to $29.03 a barrel in London.

On Wednesday, the White House said Iraq's 12,000-page banned weapons report was problematic and that it had a number of "omissions," sparking concerns that the U.S. will say there is a "material breach" of the U.N. resolution to disarm Iraq, home of the world's second-biggest oil reserve.

A 17-day general strike in Venezuela, the world's fifth-largest oil exporter and a major seller to the U.S., is a key factor for oil, Sato added. Opposition leaders, calling for new elections and the resignation of President Hugo Chavez, refuse to end the strikes that have severely crippled the Venezuelan oil industry.

If the disruptions continue for a while, "then that's a bad news for the equities market, as well as some exporters," Sato said.

Venezuela's oil production has dropped under 400,000 barrels per day, from the usual output of about 3 million barrels per day, according to the Associated Press.

Multitude of factors for oil

Weiss Research financial analyst Kevin Kerr pointed out that "with so many factors driving oil right now it's hard to pick just one."

Venezuela, Iraq, pent-up oil demand, terrorism, declines in U.S. crude supplies are the biggest factors for the rise, he said.

"A war with Iraq seems inevitable now," Kerr said.

And "the bottom line is with the spigots turned off in Venezuela and the potential for war with Iraq looking inevitable, oil prices are going to trend higher," Kerr said.

Tom Kloza, chief oil analyst at the Oil Price Information Service, a provider of oil commentary said "we need Venezuelan crude output back, plain and simple."

"One has to wonder when Venezuelan crude output and refined products output will be restored to normal," he said, emphasizing that "offshore oil platforms, and particularly refineries, aren't like cars -- they can't be restarted quickly after being virtually inert."

And it looks as though the date for the return to more normal operations, even if there's a resolution between Chavez and his detractors, would be "into the second or third week of January," Kloza said.

Petroleum-product futures prices also climbed. January unleaded gasoline was up 0.86 cent at 88.4 cents a gallon and January heating oil added 2.07 cents to 87.6 cents a gallon.

U.S. crude supplies slip

The disruption of oil production and exports from Venezuela was apparent in the latest supply reports from the U.S., which gets more than 10 percent of its oil supplies from the South American country.

The Energy Department confirmed early Wednesday that crude supplies fell last week, with the biggest decline in imports seen in the Gulf Coast, a region that receives oil shipments from Venezuela.

The government reported a 2 million-barrel fall in domestic crude inventories to total 286.7 million barrels, but the American Petroleum Institute pegged the decline at 3.2 million barrels.

Adding to support for prices is the fact that total crude supplies of 283.9 million are nearly 28 million barrels below the year-ago level, according to the API.

Data on gasoline and distillates were more difficult for traders to decipher. The API and Energy Department reported conflicting data on petroleum-product supplies.

Spot gold soars to $355 an ounce

Gold prices leaped to $355 in the spot market in Europe on Thursday, taking their seven-session gain to more than $30 before falling back.

Spot prices for gold touched a high at $355 an ounce before pulling back to stand at $343.77 an ounce, up 77 cents. On the New York Mercantile Exchange, gold for February delivery traded as high as $347.50 an ounce. It traded lately at $344.50, up $1.80 on the session. See Metals Stocks.

Natural gas jumps

Meanwhile, natural gas futures on Nymex rose sharply on the back of a triple-digit decline in last week's U.S. supplies that was above most analyst expectations.

January natural gas added 8.2 cents to stand at $5.36 per million British thermal units.

Early Thursday, the Energy Department reported a 159 billion cubic foot decline in natural gas supplies as of the week ended Dec. 13. Total inventories of 2.635 trillion cubic feet now stand at 560 billion cubic feet below the year-ago level and 151 billion below the five-year average.

Analysts at Fimat USA, who pegged their own forecast at a decline of 144 billion cubic feet, said most estimates pointed to a draw of 130 billion to 135 billion cubic feet.

The week of Dec. 6 had already seen a decline of 162 billion cubic feet. That supply fall took total natural gas stocks below the five-year average for the first time in more than a year, according to Fimat.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, rose 0.2 percent at 237.37.

http://markets.usatoday.com/custom/usatoday-com/html-story.asp?markets=Commodities&guid=%7BEBA718A8%2DF114%
2D4A60%2D8717%2D1571271591A2%7D