WASHINGTON -- Global oil production has been on a rebound for weeks, but so far little of it has reached U.S. shores, according to the Energy Department.
The department's statistical agency said Wednesday that U.S. crude oil stocks remain at an uncomfortable 270 million barrels, a level the industry considers a minimum for smooth refinery operation. That's about the same as stocks have been since early January.
At the same time, oil producers, led by Saudi Arabia, have been ramping up the amount of oil they're taking from the ground. Analysts said the oil is either in storage or on tankers already on the high seas.
That, together with an expectation that war with Iraq might be brief and avoid major damage to oil fields, has caused oil prices to tumble this week. The price of crude dropped again Wednesday to $31.05 a barrel on the New York Mercantile Exchange, a decline of nearly $7 from a week ago when it reached a 12-year high of $37.83 a barrel.
Oil traders ''are beginning ... to realize there's a bit of a glut of oil around,'' said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.
Much of that oil is now in storage in the Persian Gulf or in tankers on the high seas, said oil analysts. Saudi Arabia is believed to have as much as 50 million barrels in storage in the country and more en route to other storage facilities. That's enough to replace Iraq's 1.5 million to 2 million barrels a day for about a month.
But that oil has yet to reach the U.S. markets.
Crude inventories have consistently been 300,000 to 400,000 barrels below a year ago, said Doug MacIntyre, an oil analyst for the Energy Information Administration, the DOE's statistical arm. Imports also have been down from previous levels, although OPEC producers other than Iraq and strife-torn Venezuela have been pumping more oil for weeks.
The low U.S. inventories reflect transportation delays, but also reluctance by refiners to buy oil when the price has been $35 to $37 a barrel, analysts said.
Larry Goldstein, president of the private Petroleum Industry Research Foundation, said he anticipates that U.S. oil stocks will begin to grow in the coming weeks, adding to a calming of the markets -- as long as a war in Iraq does not become messy and threaten Persian Gulf supplies.
''If we can contain whatever negative consequences (from a war) to Iraq, then the Saudis ... have enough flexibility to take care of the loss of Iraqi oil,'' said Goldstein.
He said the markets also have been calmed by ''a more visible policy'' from the Bush administration in recent days on use of the government's Strategic Petroleum Reserve. They have made clear they're ready to use some of the 600 million barrels in the government reserve independent of action by other major oil consuming nations, he said.
Still, there remains some trepidation among oil traders and analysts should war in Iraq last a while. Crude oil prices are likely to remain volatile in the months to come, they cautioned.
''This thing could go right back up,'' said Tom Bentz, an analyst at BNP Paribas in New York, suggesting prices could rebound once fighting erupts. ''We're still vulnerable because inventories are tight.''
The biggest fear in the market is that oil facilities in other Middle Eastern countries, such as Kuwait or Saudi Arabia, could be attacked -- a scenario that would cause oil prices to shoot higher very quickly, said Fadel Gheit, senior oil analyst at Fahnestock & Co. in New York.
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