Updated from 2:34 p.m. EDT
Crude oil prices bounced back above $31 a barrel on Monday on concerns over rising tensions in the Middle East and falling temperatures in the Northeast.
Domestic crude oil and distillate stock levels are sharply lower than in past years, leaving domestic oil prices vulnerable to any hints of oil supply disruptions in the Mideast or unexpected growth in consumer demand prompted by colder-than-normal temperatures.
Fears of a winter fuel shortage already prompted the
to tap into the nation's emergency reserves. But even with the additional oil, the
Department of Energy
has warned consumers that heating bills could be substantially higher this winter than in recent years.
Violence in the Mideast
Still, while analysts agree that the possibility of Israeli-Palestinian violence spilling over into nearby oil-producing countries poses a potential threat to the world's oil supplies, they say that scenario is far from certain.
"For the oil market, the real danger is that the situation escalates to the point that Middle Eastern oil producers feel the need to become embroiled in the turmoil," analysts at
wrote in a report Monday morning. "But it has to be said that the situation remains a distant possibility at this point."
Despite a nearly $1-a-barrel spike early Monday, oil prices remain far below the 10-year high reached late last month. Oil prices have fallen more than $6 a barrel from the
peak price of $37.80 reached in late September.
The benchmark contract for November delivery of crude oil has bounced between $30 and $33 a barrel on the
New York Mercantile Exchange
in the two weeks since President Clinton ordered the release of oil from the nation's Strategic Petroleum Reserve. Oil prices settled as low as $30.53 on Thursday after contracts for the stockpiled oil were
By Monday afternoon, crude oil had settled in the middle of the recent range, up $1 at $31.86 a barrel.
"The Mideast tension is a weak fundamental reason for the market to be up," said Tim Evans, senior energy analyst at
. "Unless the conflict widens to a significant degree that you're involving other countries and it threatens shipping, this isn't going to have repercussions on the oil supply."
Evans said the bounce-back in prices appears to be more of a technical rally, as the price remains within the recent range. In addition, most of the price action took place early in the day in light holiday trading volume.
Oil Prices Aren't Expected to Ease
Still, while oil prices aren't expected to climb much higher, they aren't likely to ease much either in the upcoming months. In fact, continued concerns over supply shortages have prompted analysts to push oil price estimates higher for the current and upcoming quarters.
Banc of America Securities
raised its fourth-quarter forecasts to $30 a barrel, from $27 a barrel, and estimated that prices would remain at that level through the second quarter of 2001. Prices implied by the futures market (taken from the arithmetic average of the three monthly contracts for that quarter) are even higher: $30.88 a barrel through the fourth quarter, and $30.61 a barrel in the first quarter of next year.
Energy Information Administration
, a division of the Department of Energy, said oil prices are likely to remain above $28 a barrel through the end of the year. On Friday, the agency reported that the average oil price of $33.88 a barrel in September was the highest monthly average since the Persian Gulf War in 1991.
In the same
report, the Energy Information Administration said abnormally low inventories and surging oil prices mean household heating oil bills will likely be 25% higher than they were last winter, while natural gas heating bills are expected to jump 44%. The forecast came even after
ordered the release of 30 million barrels of oil from the Strategic Petroleum Reserves, an action not taken since the Gulf War.
But there are concerns that some of the oil released from the nation's reserves will be turned into diesel or jet fuel, other distillate products, instead of heating oil. Analysts also point out that at least some of the heating oil produced here could be sold in Europe, which is more dependent on heating oil as a fuel source and pays more for it.
Organization of Petroleum Exporting Countries
agreed to boost its production ceiling to 26.2 million barrels a day beginning this month in an attempt to bring down global oil prices. But both analysts and industry groups estimate that OPEC's actual increase is likely to result in a maximum net daily increase of a half-million additional barrels, far short of the group's stated goal of 800,000 additional barrels a day.
That is mainly because many OPEC members are already producing at or near capacity. The only OPEC members expected to be capable of substantial oil production increases include the United Arab Emirates, Kuwait and Saudi Arabia, the world's largest exporter.
But Bill Randol, an analyst with Banc of America Securities, said only Saudi Arabia is likely to produce more oil -- and September production figures indicate the country is already producing above its newly revised quota. According to the Energy Information Administration, Saudi Arabia produced more than nine million barrels of oil per day in September, nearly a half-million barrels
the increased daily quota approved for October.
"That 800,000 barrel-a-day increase isn't going to happen," Randol said. "The additional oil is already in the market."
Oil Companies Gushing Green
Steeper oil prices may be bad news for consumers, but not for major oil companies and their shareholders.
Deutsche Banc Alex Brown
raised its third-quarter projection for many major oil companies on Monday, estimating that average oil company profits will be up 189% from last year.
Under the new estimates,
is expected to more than quintuple its profits, to $3.70 a share this year from 67 cents a share in 1999.
Other integrated oil companies like
are expected to more than double their annual profits from last year, and
could more than triple its earnings this year to $7.10 a share, from $2.20 a share in 1999.
Deutsche Banc Alex Brown has a strong buy rating on Occidental, buy ratings on Conoco and Phillips, and market perform ratings on Chevron and Texaco. The firm has done underwriting for Conoco and Occidental over the past three years.