U.S. Oil Supplies Rise; Venezuela Effect Is Seen on the Horizon

December 25, 2002
By NEELA BANERJEE


Supplies of crude oil in the United States rose last week,
despite dwindling oil exports from Venezuela, according to
data released yesterday by the American Petroleum
Institute, an industry trade group.

While the data may seem reassuring at first glance,
analysts said it was too early to discount the impact of
the Venezuelan shortfall on American oil supplies.
Venezuela is the fourth-largest exporter of oil to the
United States, accounting for 14 percent of United States
oil imports. A general strike in Venezuela against the
government of President Hugo Chávez has brought oil
production there to a standstill, and exports have fallen
to a trickle.

Industry analysts say that the full brunt of that stoppage
is just beginning to be felt in the United States.

"I thought you would start to see the impact this week, but
sometimes these things take a little while to work
themselves through the system," said Thomas P. Bentz,
senior energy analyst with BNP Paribas Commodity Futures.
"There could be a lag time. It could be that we're not
getting the full effect yet."

Crude oil stocks actually rose for the week ended Dec. 20
by 2.7 million barrels, to 286.63 million barrels. But the
inventories were helped by a big jump in oil supplies on
the West Coast, mainly California, analysts said, perhaps
because crude oil shipments originally headed for Asia were
diverted to the United States, where prices are higher.

Supplies on the Gulf Coast, where most of the oil from
Venezuela is refined, were down by 1.84 million barrels,
according to the trade group.

"If you excise the West Coast, there's an overall draw-down
of oil by about 1.3 million barrels," said John P. Kilduff,
senior vice president of energy risk management at Fimat
USA, a unit of Société Générale. "It's the beginning of the
problems with the Venezuela situation, and it will keep
getting worse."

The price of oil for February delivery rose 22 cents
yesterday, to close at $31.97 a barrel on the New York
Mercantile Exchange. During trading, the price topped $32 a
barrel, its highest level in 22 months. Traders are
concerned not just about Venezuela but about the increasing
possibility of war with Iraq and that conflict's impact on
supplies from the region. The inventory data were released
after trading ended.

Some analysts expect the price of oil to decrease only
slightly, given the data, when trading resumes tomorrow.
The exchange is closed today.

But Mr. Kilduff said he thought prices would remain at
their current high levels.

"If the Venezuelan strike is still ongoing when we wake up
Thursday, this will not be bearish for prices," Mr. Kilduff
said. "When you break down the numbers and get behind the
data, it will actually turn out to be bullish."

A key indicator that traders and analysts will be watching
is the "run" rate at refineries, or how much of their
capacity is being used to make petroleum products. At this
time of year, when heating oil is in demand, refineries
normally run at 93 percent or more of capacity, Mr. Kilduff
said. But the data show that run rates have actually
declined, to 88.7 percent, from 89.2 percent the previous
week.

"The low refinery utilization number," Mr. Kilduff said,
"is reflective of what refiners see as a problem with crude
supplies."

Traders and refiners have said this week that refineries
are scrambling to buy crude oil to make up for the
Venezuelan exports. Two major refineries in the Caribbean
that supply gasoline and other petroleum products to the
United States have sharply reduced how much crude oil they
process.

One of them, the Hovensa refinery in St. Croix, V.I., said
it would increase output again in January, but a spokesman
for a partner in the refinery, the Amerada Hess
Corporation, said he did not know whether the plant would
be able to operate at its capacity of 450,000 barrels of
oil a day.

Refineries on the Gulf Coast have also reduced their
output. Last Friday, Representative Billy Tauzin of
Louisiana and the chairman of the House energy committee,
sent a letter to the energy secretary, Spencer Abraham,
urging the government to release oil from the strategic
petroleum reserve because of the supply disruptions out of
Venezuela.

In the letter, Mr. Tauzin said two major refineries that
account for "approximately 10 percent of the market for
refined products will run out of crude oil by the end of
the month." Mr. Tauzin declined to identify the refineries,
but analysts said they thought he was talking about two
large refineries in Louisiana and Texas owned by Citgo.

Citgo is a subsidiary of Petróleos de Venezuela, the
Venezuelan state oil company, and slightly less than half
its crude oil supply comes from Venezuela.

A Citgo spokesman, Jim McCarthy, declined to comment on the
possibility of the company's refineries running out of oil,
saying only that "our traders are out there working as hard
as they can to find crude to make sure that we don't have
to cut back."

http://www.nytimes.com/2002/12/25/business/worldbusiness/25REFI.html?ex=1041940422&ei=1&en=fa76e884b4f1b212