The Washington Post: Oil Falls Amid Doubts About Q4 Demand

Contractors, employed by Transredes, a pipeline company part owned by Royal Dutch Shell, lay a new natural gas pipeline in Patacamaya, Bolivia, Thursday, Oct. 4, 2007. Bolivia’s President Evo Morales ordered the nationalization of his nation’s oil and gas industry last year. After extensive negotiations, foreign energy companies were allowed to remain in Bolivia but agreed to turn over majority control of their operations to the state. (AP Photo/Dado Galdieri) (Dado Galdieri – AP)

By JOHN WILEN
The Associated Press
Friday, October 5, 2007; 4:39 PM

NEW YORK — Energy futures fell Friday as traders expecting a weakening of demand in the coming months cashed in profits from the previous session’s rally.

While an encouraging employment report suggested the economy is weathering the problems affecting the subprime mortgage industry, many energy traders and analysts question whether demand for oil and petroleum products will be strong enough in the fourth quarter to support $80 a barrel oil.

Others argue that demand for oil will increase as home heating season progresses. While crude inventories have risen for two straight weeks, supplies of gasoline and distillates including heating oil fell last week. Investors betting demand will tighten in the fourth quarter drove oil prices $1.50 higher on Thursday.

On Friday, light, sweet crude for November delivery fell 22 cents to settle at $81.22 a barrel on the New York Mercantile Exchange. Futures ended the week down 44 cents a barrel, or 0.5 percent. Trading on Friday was volatile, with prices alternately rallying and falling.

“There’s profit-taking going on after yesterday’s rally,” said Addison Armstrong, an analyst with TFS Energy Futures LLC in Stamford, Conn.

The quick resolution of many of Thursday’s West Coast refinery outages also pressured prices Friday. November gasoline fell 0.29 cent to settle at $2.0493 a gallon on the Nymex, ending the week down 1.9 cents, or 0.9 percent. Heating oil futures fell 0.78 cent to settle at $2.2235 a gallon. Both contracts surged more than 5 cents on Thursday.

Natural gas for November delivery fell 33.9 cents to settle at $7.073 per 1,000 cubic feet. Forecasters see little chance that a series of storms strung from the Gulf of Mexico to the central Atlantic will develop into tropical storms that could threaten critical gas and oil infrastructure.

In London, November Brent crude fell 7 cents to settle at $78.90 a barrel on the ICE Futures exchange.

Oil prices have been volatile in recent days as investors have battled over whether demand will grow or weaken in the fourth quarter.

“It’s a stalemate right now,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. “People really don’t know what the next move will be.”

Energy Department data suggests demand for gasoline is falling, and many analysts think that’s a function of this year’s record gas prices.

At the pump, gas prices slipped 0.8 cent overnight to a national average of $2.771 a gallon, according to AAA and the Oil Price Information Service. Prices are well off their May peak of $3.227 a gallon, but remain 48.1 cents higher than they were a year ago.

“With gasoline prices still clinging to the $3 (a) gallon area in many regions, further slowing in gasoline demand should be expected,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., in a research note.

But others argue that falling refinery activity and heating oil inventories suggest supplies of heating and crude oil will be tight when heating season demand begins to grow. Many refineries shut down to conduct seasonal maintenance in the fall.

“With heating oil stocks 23 percent below normal for this time of year and refinery capacity below normal for this time of year, where is the capacity that’s going to make heating oil going to come from?” Armstrong said. “The picture’s tight, and it’s going to get tighter before it gets better.”

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/05/AR2007100500533.html

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