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Oil futures end above $55 for 1st time
Natural gas jumps 21% for the week to a 19-month record
By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 3:41 PM ET Oct. 22, 2004


SAN FRANCISCO (CBS.MW) -- Crude-oil futures climbed Friday to close above $55 a barrel for the first time in New York as heating-oil prices continued to tap new records in the face of dwindling U.S. supplies.

At the same time, the strength in the petroleum market helped lift natural-gas prices by 21 percent this week to a fresh 19-month high.

"Heating oil is definitely helping crude oil forge higher prices, and as we move into the winter heating season, demand remains strong," said Michael Cavanaugh, an analyst at MyFuturesOnline.com.

And "even though it appears supply numbers were positive for oil, fear of greater demand and the ever-present terror fear continue to drive the market higher," he said.

Crude for December hit an intraday record of $55.50 a barrel on the New York Mercantile Exchange, surpassing the previous record of $55.20, reached Oct. 20 during the regular session and the $55.33 peak in overnight trading Oct. 18.

The contract closed at $55.17, up 70 cents for the session, and up $1.20 for the week. Futures prices had never closed above $55 on the exchange.

November heating oil closed at $1.5944 a gallon, up 1.49 cents, after an intraday record of $1.603. November unleaded gasoline rose 2.68 cents to $1.439 a gallon.

"Evidence of consistent stockpile replenishment or global economic contraction would have to be generally acknowledged before prices could change course," Michael Fitzpatrick, an analyst at Fimat USA said in a note to clients.

The Energy Department reported Wednesday a fifth weekly drop in distillate supplies, which include heating-oil inventories for the winter season, even though crude stocks climbed. See full story.

Right now, distillate "inventories show no signs of rebuilding, therefore the market will continue to trend higher," said Michael Armbruster, an analyst at Altavest Worldwide Trading, adding that he sees "no price ceiling."

Cavanaugh believes the next stop for crude prices is $60 a barrel. But as distillates registered another drawdown this week, crude oil continues to build so "in all probability, distillates will show its first of what might possibly be successive builds next week," said Fitzpatrick.

On the global demand side, "signs of economic contraction, particularly as a consequence of higher energy prices, are sprouting," he said. China's economy grew more than 9 percent in the third quarter compared with a year earlier, marking the third-consecutive quarter of slower growth.

Natural gas up 21% for the week

Elsewhere on Nymex, natural-gas futures marked a five-day gain, climbing 21 percent for the week to end at a fresh 19-month high on the back of strength in oil prices as well as forecasts for a cold winter.

November natural gas closed up 40.8 cents, or 5.3 percent, at $8.105 per million British thermal units after an $8.23 high. Futures prices haven't closed at a level this high since March 2003. A week-ago, natural gas closed at $6.709.

High oil prices and forecasts of a normal or colder-than-normal winter provide support for high prices, said Ron Denhardt, a vice president at Strategic Energy & Economic Research.

But natural-gas supplies have been running above the five-year average, even with around 1.5 million barrels a day of output still shut in the Gulf of Mexico, he said.

That could mean that the supply-demand balance could be 2 billion cubic feet a day looser than the five-year average, so if the market sees mild or even normal weather for the next few weeks, "the downward pressure on prices will increase," he said.

In equities, energy shares were higher, with the Amex Oil Index ($XOI: news, chart, profile) leading the climb among the sector indexes. See Energy Stocks.

In Nymex metals trading, gold futures logged a gain of nearly $6 an ounce for the week. Prices are holding at their highest in six months. See Metals Stocks.

The Reuters/CRB index, a broad measure of commodity futures markets, was down 0.1 percent at 286.55 points.

Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.