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Oil hits 31-month high
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September 9, 1999: 11:24 a.m. ET
Fresh evidence of falling inventories drives Brent crude to $22.74 a barrel
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LONDON (CNNfn) - A surprisingly large drop in U.S. crude inventories sent oil prices gushing Thursday to 31-month highs in London. The surge marked the latest milestone in crude oil's comeback since last December, when prices hit a historic low below $10 a barrel.
Benchmark Brent crude for October delivery surged as much as 47 cents in London Thursday, reaching $22.74 a barrel, after weekly data from the American Petroleum Institute showed a nearly 6 million barrel drawdown in stocks -- far exceeding market expectations for a 2.6 million barrel drop.
On Thursday, Brent closed at $22.27 in London.
The figures reinforced confidence that OPEC, the world's oil cartel, continues to succeed in holding its members to production cutbacks aimed at paring bloated inventories.
Under the export curb, negotiated by five key oil producers and signed in late March, OPEC agreed to remove 7 percent of its daily supplies, or 1.7 million barrels, from the world market. Additional pledges from non-OPEC members Oman, Norway, Mexico and Russia took the total cutbacks to 2.1 million barrels daily.
Six months later, crude stockpiles are roughly at levels last seen in the period from 1995 to 1997.
At that time, prices averaged around $21 a barrel. That was before weak global demand contributed to an inventory build-up that sent oil prices plummeting to a low $9.55 a barrel last December 21 -- their lowest level in two decades.
Pav Sanghera, an oil analyst at T. Hoare Canaccord in London, said traders now were looking ahead to a report Friday from the U.S. Department of Energy that is expected to corroborate the bullish tone of the API figures.
Sanghera noted that oil prices historically have hit peak levels in October, in the run-up to the high-demand winter season. Analysts say the current rally may carry prices as high as $25.
At that level, the impulse to cheat on export pledges may grow. Sanghera said compliance is currently at 82 percent, and even if a member were to violate the cutback pact by secretly pumping and dumping oil on the world market, the impact on prices wouldn't show up for four to six weeks while the surplus moved through the production chain.
The last time crude was seen around these levels was on Feb. 4, 1997, when Brent hit a high of $22.77.
--from staff and wire reports
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