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UPDATE 1-US oil on high alert as Mideast crisis simmers October 13, 2000

(Updates with closing prices in paragraph 2, Richardson comments in paragraphs 9,15)

By Andrew Mitchell

NEW YORK (Reuters) - U.S. oil markets stayed on high alert Friday as traders watched for signs of further escalation in the Middle East's political crisis and of possible impact on tight oil supplies.

November crude on the New York Mercantile Exchange fell $1.07 to $34.99 a barrel, still within three dollars of post-Gulf War highs as traders watched for further fallout from Israeli forces' Thursday attack on Palestinian President Yasser Arafat's West Bank headquarters.

Rising regional violence pushed crude oil prices up three dollars on Thursday as fears of a cut in Middle East oil flows at a time played on concern that the U.S. is heading into winter with a big deficit in heating fuel.

Prices are now almost back up where they were when President Clinton ordered the release of 30 million barrels of crude oil from strategic stockpiles in an attempt to head of supply shortages this winter -- a move he took even before Middle East tensions boiled over.

Traders fear the Middle East's vital oil supply could suffer fallout from the conflict even though analysts say concerted Arab action to punish Western support for Israel by holding back oil supply -- as in the 1973 Arab oil embargo -- is unlikely except in the event of full-scale war.

The U.S. is particularly vulnerable as rising demand for energy and a dearth of new investment in the domestic supply system has left oil supplies are so tight that even the hint of a disruption to flows is enough to send prices shooting higher.

``The psychological impact is magnified due to generally low inventories and a stretched oil supply/delivery infrastructure. Adding to the sense of dread is the possibility that Iraq will halt exports,'' said Deutsche Bank in a report.

DEPENDENCE ON MIDEAST SUPPLY

Over a quarter of all U.S. oil imports, or some 2.8 million barrels per day (bpd) of crude and refined products come from the Middle East, including some 750,000 bpd from sanctions-bound Iraq under a U.N-sponsored oil-for-food program.

U.S. Energy Secretary Bill Richardson said there was no reason to believe that Middle East oil producers will cut their production but that if oil supplies are affected, President Bill Clinton will consider every option to counter disruptions.

The run up in prices on Thursday pushed NYMEX heating oil futures to their highest level for nearly 20 years amid a stampede to lock in supplies ahead of winter.

The American Petroleum Institute (API) said on Tuesday that there is 51 percent less heating oil in East Coast stocks than in early October 1999.

Analysts have warned that the SPR release -- which initially cut crude prices some seven dollars to nearly $30 a barrel -- has done little to improve availability of heating oil in the northeast, which is highly dependent on this fuel for heating homes and offices.

Not only does the SPR crude have to be transported, refined and delivered before it reaches consumers, but high prices in Europe means that U.S. heating oil supplies have been exported across the Atlantic.

The SPR release also came under fire from Republicans who said it was an attempt to win votes in November's Presidential election, as rising energy costs feed fears of renewed inflation and economic recession.

Energy Secretary Richardson said on Friday that oil firms Amerada Hess as well as joint ventures including Royal Dutch/Shell , Texaco Inc and Saudi Aramco have voluntarily agreed to keep heating oil in the U.S. market for domestic consumption.

Demand for the winter fuel is expected to be strong this year with the U.S. government weather scientists on Thursday saying that the recent string of record warm U.S winters may be over, and forecasting a return to normal colder temperatures for the upcoming season. In its winter outlook, the National Oceanic and Atmospheric Administration forecast that the Northeast region could see average temperatures 4 degrees Fahrenheit colder than during the last three winters.

http://www.individual.com/story.shtml?story=d1013160.600

-- Martin Thompson (mthom1927@aol.com), October 13, 2000