Crude Oil Rises a Second Day After U.S. Fuel Inventories Drop

By Mark Shenk

November 9, 2006

Nov. 9 (Bloomberg) -- Crude oil rose to the highest this month a day after an Energy Department report showed that U.S. supplies of distillate fuel, a category that includes heating oil and diesel, fell for a fifth week.

Distillate stockpiles have plunged 8.5 percent to 138.6 million barrels in the past five weeks, according to the department. Crude-oil supplies rose 435,000 barrels last week, the report showed. An increase of 750,000 was expected, according to a Bloomberg news survey. OPEC may cut output at a meeting next month, Saudi Arabia's oil minister, Ali al-Naimi, said on Nov. 6.

``The big draw in distillate stocks coupled with the small size of the gain in crude-oil supplies is in part responsible for this rally,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Also, we're still digesting the Saudi statement that the market is over-supplied and another cut may be necessary. The Saudis are moderates and usually don't push for cuts.''

Crude oil for December delivery rose 94 cents, or 1.6 percent, to $60.77 a barrel at 10:01 a.m. on the New York Mercantile Exchange. Futures touched $60.85, the highest since Oct. 30. Prices are up 3.1 percent from a year ago. Oil has traded in a range of $56.55 to $61.79 for the past month.

Oil has plunged 22 percent from the record of $78.40 a barrel reached July 14 amid concern that fighting in Lebanon would spread through the Middle East, source of a third of the world's oil. Since then, the Lebanese cease fire, rising supplies and a calm Atlantic hurricane season have caused the price decline.

OPEC Production Cuts

Members of the Organization of Petroleum Exporting Countries agreed on Oct. 20 to reduce oil output by 1.2 million barrels a day to stem a three-month slide in prices. The reductions started Nov. 1. The group, which pumps about 40 percent of the world's oil, is next scheduled to meet in Abuja, Nigeria on Dec. 14.

OPEC's reduction is untimely because demand for heating fuel will soon rise as winter sets in, said Claude Mandil, executive director of the International Energy Agency. The Paris-based IEA was set up in 1974 to advise industrialized nations on energy policy.

``We are concerned by OPEC's decision to cut output,'' said Mandil in Singapore today. ``Many OPEC officials are trying to defend $60 as the bottom price for oil, when the level is the exact opposite of being low.''

Brent crude oil for December settlement rose $1.34, or 2.3 percent, to $60.93 a barrel on the London-based ICE Futures exchange. Futures touched $61.02, the highest since Oct. 30.