Oil prices fell slightly on Tuesday, pressured by late selling on the prompt New York futures crude contract, traders said. March futures for world bench mark Brent Blend crude ended the day 22 cents lower at $22.35 a barrel on Londons International Petroleum Exchange (IPE).
Oil prices shed nearly $2.0 last week but held above the psychological $22 a barrel mark with traders reluctant to sell in a tight winter market, despite renewed limited exports from Iraq.
Early fears that the sustained bull rally in oil prices would come to an end once the Iraqi barrels appeared were unjustified. Oil prices actually strengthened, courtesy of the weather, the Centre for Global Energy Studies (CGES) said in its monthly oil report.
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The weather, which turned bitterly cold in Europe in the New Year, helped to support oil by stoking demand for heating fuel. CGES said this was still key to determining price direction over the next few weeks.
Unless the rest of the winter turns out to be especially mild, oil prices in first quarter of 1997 should, on an average, be even higher than they were in fourth quarter 1996, the report said.
The market seemed to wait for the US. stocks data, released yesterday, to see if last weeks build in middle distillates (which include heating oil) would be sustained and help to bring stocks nearer to 1996 levels.
US distillates stocks last week stood at 126 million barrels compared to 143.5 million the same time a year ago.
Oil companies in recent storage tanks have adopted a just in time policynot filling up, confident that Iraqi crude oil and an anticipated rise in non-Opec supplies would come to the rescue.
That did not happen last year, when prices in October rose to a six-year high of just above $25 a barrel.
Iraqi crude oil exports, under the United Nations embargo since August 1990, did not materialise as expected.
last September and technical problems delayed the start of production in new fields outside producers of the Organisation of the Petroleum Exporting Countries (Opec).
Opec pumps more oil than their self-imposed ceiling of 25.03 million barrels per day but the market has absorbed the excess. The CGES said spare capacity was still low at five per cent of global demand. With oil prices well above Opecs target, its members were unlikely to rein in production and western companies should be able to rebuild stocks to 60 days of forward consumption by the start of the second quarter this year, the CGES said. The stage will be set, however, for a weakening of oil prices thereafter, it added.