Oil Jumps Most in 16 Months on U.S. Plan to Increase Reserve
By Mark Shenk
Jan. 23 (Bloomberg) -- Crude oil surged the most since hurricanes devastated the Gulf of Mexico coast in September 2005 after the U.S. said it will double the size of the nation's Strategic Petroleum Reserve.
The reserve will increase from its current capacity of 727 million barrels of oil to 1.5 billion barrels over the next two decades, Energy Secretary Samuel Bodman said today. Bodman said the U.S. will start buying 100,000 barrels of oil a day this spring to expand the stockpile. Prices rose earlier because cooler U.S. weather will increase fuel use.
``Doubling the size of the SPR would add significant upward pressure on oil prices,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. ``It would remove a significant amount of supply from the market. Refiners will have to spend more to get the available barrels.''
Crude oil for March delivery rose $2.46, or 4.7 percent, to $55.04 a barrel, on the New York Mercantile Exchange, the highest close since Jan. 9. It was the biggest one-day gain since Sept. 19, 2005. Prices are 19 percent lower than a year ago.
The U.S. reserve and similar stockpiles in Europe and Asia are held to make up for disruptions of global oil supplies. The U.S. tapped reserves in 1991 after Iraq invaded Kuwait and in 2005 after hurricanes disrupted pipelines, refineries and Gulf of Mexico production.
``We will have to fill the reserve at the rate of 100,000 barrels a day for the next 20 years,'' said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ``Taking 100,000 barrels a day will take some oil off the market, but keep in mind the world produces about 85 million barrels day.''
97 Days of Imports
The expanded reserve, which is stored in salt caverns along the U.S. Gulf Coast, would hold oil equivalent to about 97 days of U.S. oil imports.
The eastern two-thirds of the nation will experience below- normal temperatures from Jan. 29 to Feb. 6, the National Weather Service said today. Heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil consumption, will be 11 percent above normal this week, Belton, Missouri-based forecaster Weather Derivatives said.
``Forecasts show that the weather is turning colder, especially along the East Coast, which is really rocking natural gas and heating oil,'' said Aaron Kildow, a broker at Prudential Financial Derivatives LLC in New York. ``Crude oil is following them.''
Heating oil for February delivery rose 6.79 cents, or 4.5 percent, to $1.5763 a gallon in New York. Natural gas for February delivery climbed 27.8 cents, or 3.8 percent, to $7.597 per million British thermal units in New York, the highest since Dec. 13.
Weakened El Nino
Signs that an El Nino weather system may be weakening led meteorologists at the U.S. Climate Prediction Center to revise their outlook for temperatures in the eastern U.S. during February. The agency on Jan. 18 forecast a greater chance for below-normal temperatures across the eastern third of the country during the rest of January and in February.
El Nino refers to the warming of the Pacific Ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns. A moderate to strong El Nino typically brings mild winters to the U.S.
``I think we're seeing an instinctual response to the colder weather,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands. ``The move is probably overdone because the winter has been so warm already and it's just too late to make much of a dent in distillate supplies.''
U.S. inventories of distillate fuel, a category that includes heating oil and diesel, in the week ended Jan. 12 were 7.2 percent above the five-year average for the period, the Energy Department said last week. Crude oil, gasoline and natural gas stockpiles were also above the five-year average, according to the department.
Nigerian Kidnappings
A U.S. and a British citizen were kidnapped in the Nigerian city of Port Harcourt today and the Philippine government said 24 of its nationals were abducted three days ago. More than 200 people, about half of them expatriates, have been kidnapped in Nigeria's oil-producing region in the past year.
Militant groups and criminals kidnapping for ransom have been behind earlier abductions. Nigeria is the fifth-biggest U.S. oil supplier.
The Movement for the Emancipation of the Niger Delta, or MEND, has attacked oil installations in the Niger Delta in a campaign to cripple the country's oil industry. Its raids forced Royal Dutch Shell Plc's unit in Nigeria to halt output of about 500,000 barrels a day, almost a quarter of the country's current production.
``The market has already priced in that Nigeria will remain somewhat chaotic at least through the presidential election in April,'' Mueller said.
Nigeria's presidential election is scheduled for April 21.
Brent crude oil for March settlement rose $2.40, or 4.6 percent, to close at $55.10 a barrel on the London-based ICE Futures exchange.