Oil Prices Soar Nearly $2 a Barrel

Tuesday, Nov. 6, 2007 | 12:08 p.m.

Oil prices soared nearly $2 a barrel Tuesday on expectations of further declines in U.S. crude oil stocks, fueling concerns that supplies may be inadequate heading into winter in the Northern Hemisphere.

Light, sweet crude for December delivery rose $1.77 to $95.75 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.

December Brent crude added $1.80 to $92.29 a barrel on the ICE Futures exchange.

Market participants expect the U.S. Energy Department to report Wednesday that oil inventories fell last week, in part because of a suspension of output at Mexico's state oil company Petroleos Mexicanos, a major crude exporter to the United States.

Last week, crude futures jumped more than $4 after figures showed a sharp, unexpected drop in U.S. crude inventories for the second week in a row.

"The oil market is really supported by the tight inventories in the U.S. market and the general expectations for the inventory report this week are that the crude inventories will likely fall," said Victor Shum of Purvin & Gertz in Singapore.

Analysts think some traders and investors will try to push oil prices to the psychologically important $100 level this week. Crude prices are within the range of inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

"The market remains bullish and seems to be on an upward trend to hit the psychologically important $100 level. While it is on the uptrend there is a tremendous amount of volatility," Shum said. "It's not unusual to see prices change in a range of $2 in a day."

Crude stocks are expected to fall by 1.6 million barrels, according to the average forecast in a Dow Jones Newswires survey of energy analysts. Gasoline inventories are expected to increase by 200,000 barrels, while distillates, which include heating oil and diesel fuel, are likely to have fallen 500,000 barrels, the survey showed.

"With the disruption to Mexican crude oil exports, it's to be expected that U.S. crude imports will remain on the low side in tomorrow's DOE report and keep U.S. crude oil stocks under pressure," said Olivier Jakob at Petromatrix in Switzerland.

The Nymex crude contract had fallen $1.95 to settle at $93.98 a barrel Monday, weighed down by news of more Citigroup Inc. writedowns, the release of Turkish soldiers that had been captured by Kurdish militants and a drop in U.S. share prices.

Traders and analysts said the pullback was a result of funds and other speculators locking in recent gains, rather than a change in sentiment that could threaten the continuation of crude's 15 percent runup in the past month.

Heating oil futures added 4.41 cents to $2.5880 a gallon (3.8 liters) on the Nymex, while gasoline prices gained 3.89 cents to $2.4200 a gallon.

Natural gas futures lost 2.2 cents to $7.977 per 1,000 cubic feet.

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Associated Press Writer Gillian Wong in Singapore contributed to this report.