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Oil Slips to $33.24 Despite Inventory Data

A major buildup in stocks hasn't materialized yet.

Though evidence of the recently announced increase in oil supplies from the Middle East and the release of oil from the domestic strategic reserves has yet to materialize, according to the latest surveys of U.S. oil inventory levels, oil prices continued to ease back Wednesday from recent highs.

In its weekly report, released late Tuesday, the

American Petroleum Institute

, an industry group, reported a slight increase in the level of crude oil stocks. Meanwhile, the

Energy Information Administration

survey, which was released Wednesday and often looked to for confirmation of the API data, showed a decrease of 1.6 million barrels. Even the API's reported 35,000-barrel inventory increase falls far short of analysts' expectations of an increase of 2.5 million barrels, according to a



Both the API and the government agency surveys found increases in the stock levels of distillates, which include heating oil and diesel fuel. The increases helped assuage fears of surging fuel costs this winter. The API estimated that domestic distillate inventories rose 1.3 million barrels while the EIA reported a larger increase of 2.1 million-barrels -- both above the consensus market estimate.

Refineries were also running closer to capacity, with the utilization rate jumping a half-point to 93.8%, according to the API, and by 0.2% to 93.7%, according to the EIA. The completion of regularly scheduled maintenance work on many refinery facilities helped to increase the production capacity.

Both agencies also reported a decrease in gasoline inventories, with the API reporting a drop of 1.1 million barrels while the EIA reported a draw of 2.0 million barrels. That's in line with analysts' expectations of a drop of 1.5 million barrels, according to a



Analysts have been anticipating a major buildup in oil inventories for weeks now, after the

Organization of Petroleum Exporting Countries'

two recent production output increases, totaling about 1.3 million additional barrels per day, and the

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release of 30 million barrels of crude oil from the nation's

Strategic Petroleum Reserves

in late September.

Instead, oil inventories have declined, or remained relatively flat (depending on which agency's data you're examining), for the

past two weeks. Thorsten Fischer, an energy analyst at

, said the failure of any of the expected oil to show up in inventory data was likely to exert strong upward pressure on crude prices.

"It further undermines the market's confidence in OPEC's announcements. The announced production increases have simply not materialized in the inventories," said Fischer in an analysis of the inventory reports.

Crude oil inventory levels remain within about 2 million barrels of their 24-year lows. With inventories that low, Fischer warned of a considerable upside risk for crude oil prices.

Instead, "reverse psychology" seemed to prevail in the marketplace Wednesday, according to Tim Evans, senior energy analyst at



The price of the benchmark contract for December delivery of crude oil actually fell on the

New York Mercantile Exchange

despite analysts' expectations for an increase in prices. After falling as low as $32.83, the contract bounced back slightly but settled the day at $33.24, down 16 cents for the day.

Similarly, the contract for December delivery of unleaded gasoline settled down 1.7 cents at 87.42 cents. Earlier in the day, gasoline had traded as low as 86.70 cents. Meanwhile, the price of the December contract for heating oil, a distillate, actually rose by a penny to settle at 95.93 cents.

"Overall, this nets to a market that is still without a clear trend," said Evans. "We still don't have all our ducks in a row. We've got a mixed fundamental and technical outlook."

Still, Evans said U.S. refiners -- and apparently the market as well -- are increasingly comfortable with the current low inventory levels. "Availability of crude is not a problem in our view, with the Strategic Petroleum Reserves crude (oil) and higher OPEC output contributing to stock builds elsewhere, if not yet here," he added, in an analysis of the inventory data.

OPEC has now agreed to four production increases this year - two of them in the last month. The most recent was a half-million-barrel daily

increase triggered under its price band mechanism at the end of last month. Prices had stayed above OPEC's target ceiling of $28 for its "basket" of seven crude oil blends for 20 consecutive working days.

Analysts say cartel members are not likely to approve another increase at their meeting this month. Only Saudi Arabia and the United Arab Emirates are believed to have significant production capacity remaining after the cartel's recent increases anyway.

Analysts estimate that it takes 30 days to 45 days for oil produced by OPEC to arrive in the U.S. In addition, remaining contracts for all of the 30 million barrels of oil drawn from the nation's strategic reserves were only awarded late last month so the additional oil may not yet be reflected in inventory data. As the oil supplies increase, prices are expected to fall even lower -- to $30 a barrel or below by early 2001.