US warns that oil stocks are 'alarmingly low'

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The United States government warned yesterday that oil supplies were "alarmingly low" as official figures showed a sharp drop in stocks.

The United States government warned yesterday that oil supplies were "alarmingly low" as official figures showed a sharp drop in stocks.

The price of crude surged by more than a dollar after the American Petroleum Institute said stocks of heating oil down by almost one-third on the same time a year ago. Bill Richardson, the US Energy Secretary, said: "Crude and heating oil inventories remain alarmingly, stubbornly low."

The API said heating oil stocks fell by 665,000 barrels to leave inventories more than 30 per cent down on their level in November 1999. A separate report from the US Department of Energy showed a similar fall in heating stocks of 500,000 barrels to 47.8 million.

Mr Richardson told oil executives and ministers at the Oil and Money conference in London that while $10 a barrel was too low, any price above $30 was too high. Yesterday the price of Brent crude rose by $1.29 to $33.98 a barrel before falling back to $33.75 by the London close.

"It is down to one thing - cold weather. I expect we will see Brent trading between $30 and $35 over the winter until demand for heating oil tapers off," said Lawrence Eagles, an oil analyst at GNI Research.

Mr Eagles said traders had been unsettled by renewed signs that Saddam Hussein wanted to break the sanctions imposed on Iraq. The Iraqi president is insisting that any purchasers of Iraqi oil must pay 50 cents a barrel into a non-United Nations account to cover Iraq's costs.

Mr Eagles said: "Saddam is prepared to use the oil weapon to get sanctions removed. He realises that this winter is probably one of the last opportunities for him to use this weapon."

Mr Eagles said he estimated that sales of crude under the "oil for food" deal had been so successful that Iraq had been able to build up enough cash reserves to be able to cut supplies for four months.

"He is trying to cause sanctions to collapse and if the wall starts crumbling he will be sure to push it down," he said, adding that the Iraqi leader would seek to exploit the political vacuum in the US as the election crisis continues.

The situation is likely to be exacerbated by the coming winter, which is expected to be much colder in the US and Europe than in recent years.

The Organisation of Petroleum Exporting Countries (Opec), the oil cartel, has increased supply by 3.6 million barrels a day so far this year in response to increasing concerns in the West over the rising oil price.

But last weekend Opec decided to keep output unchanged amid growing signs that its member countries are becoming concerned about a sudden slump in the oil price if supply rises too quickly.

Opec ruled out another hike in output until at least 17 January, the date of its next meeting. The 11-member cartel is already operating at close to capacity.

The two states with room to increase production are Saudi Arabia and Kuwait. Mr Richardson urged them to push Opec to allow further supply increases in January.

Sixty oil producers and consumers, including the US, are meeting later this week in Saudi Arabia.