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    Crude Oil Falls in New York After Surging on Saudi Explosion

    Dec. 30 (Bloomberg) -- Crude oil in New York fell on speculation yesterday's rally was an overreaction to terrorist attacks in Saudi Arabia, capping a year in which prices gained 34 percent and touched record highs.

    Oil in New York has averaged a record $41.47 a barrel this year as demand surged and unrest in Iraq, Saudi Arabia and Nigeria threatened shipments. Oil facilities were unaffected by yesterday's attacks in the Saudi capital. Global oil demand had the biggest increase since 1976, according to estimates from the International Energy Agency.

    ``Demand grew at double the rate as originally estimated,'' said George Gaspar, an energy analyst with Robert W. Baird & Co. in Milwaukee. ``There was a tremendous security premium due to trouble in the Middle East and some serious outages, such as occurred in the Gulf of Mexico.''

    Crude oil for February delivery fell 19 cents, or 0.4 percent, to close at $43.45 a barrel on the New York Mercantile Exchange. Oil has lost 22 percent since touching a record $55.67 on Oct. 25. The 34 percent increase was the third-biggest annual rise since futures began trading in 1983.

    In London, the February Brent crude-oil futures contract rose $1.20, or 3.1 percent, to $40.37 a barrel on the International Petroleum Exchange. The exchange, which was closed on Dec. 27 and Dec. 28, shut early yesterday. Brent futures have declined 22 percent since reaching $51.95 on Oct. 27, the highest since the contract began in 1988.

    Holiday Trading

    The New York exchange closed early and will remain closed tomorrow for the New Year's holiday. The International Petroleum Exchange closed at 6 p.m. local time this evening and will shut at 1 p.m. tomorrow.

    Volume on the exchanges is lower than normal because many traders took off the last two weeks of December.

    ``The moves these past two weeks have been ridiculously large because of a lack of liquidity in the market,'' said Marshall Steeves, an analyst at Refco Group Inc. in New York.

    Oil-industry profits surged 38 percent during the first three quarters of 2004 from a year earlier as demand and prices climbed to records. The 13 members of the Amex Oil Index, which includes Exxon Mobil Corp., Total SA and BP Plc, had net income of $69.15 billion during the first nine months of the year, up from $50.17 billion a year earlier.

    Price Forecast

    Prices will decline in 2005 and average $39 a barrel for the year because of reduced demand and increased supplies from the Organization of Petroleum Exporting Countries and Russia, a Bloomberg survey showed. New York oil futures will average $43 a barrel in the first quarter, according to the median forecast among 24 analysts polled.

    The IEA, an adviser to 26 oil-consuming nations, forecast that consumption would rise by 1.4 million barrels a day next year. China has led demand growth this year, the agency said. China is the world's second-biggest consumer of petroleum products.

    ``It was the year that Chinese demand came into the foreground,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``OPEC found out that they liked the higher prices and will now aim for a new plateau.''

    Oil platforms in the Gulf of Mexico are boosting output as damage from Hurricane Ivan, which hit the region in September, is repaired. Production was 151,777 barrels a day below normal on Dec. 16, compared with 1.4 million barrels a day on Sept. 15, the Minerals Management Service said. The service is part of the U.S. Interior Department and regulates offshore output.

    ``The worst predictions didn't materialize,'' Gaspar said. ``The system is working. Traders underestimated the efficiency of the oil sector in the U.S., and its ability to operate with less oil in stock.''

    Retail Gasoline

    U.S. retail gasoline rose to a record $2.064 a gallon in May, according to the Energy Department, on concern that supplies would be inadequate to meet peak demand during the summer months. Pump prices averaged $1.791 a gallon in the week ended Dec. 27, the lowest in more than eight months.

    Gasoline for January delivery rose 0.44 cent, or 0.4 percent, to $1.0887 a gallon in New York.

    ``The Saudi oil infrastructure is so dispersed that it would be a huge undertaking to put a dent in capacity,'' Steeves said. Yesterday's gain ``was due to concern that the explosion might signal a resurgence of militancy in the kingdom.''

    Terrorist attacks in Saudi Arabia, including a raid by gunmen on the U.S. consulate in Jeddah, have claimed the lives of at least 43 foreigners since May 1, when al-Qaeda-linked militants stepped up violence against the government and its allies.

    Heating Demand

    Prices also fell as warmer-than-normal weather in the eastern U.S. reduced heating-fuel consumption. In the period Dec. 31 through Jan. 6, heating demand in the U.S. Northeast will be 38 percent below normal, forecaster Weather Derivatives Inc. of Belton, Missouri, said. The Northeast consumes about 80 percent of U.S. home-heating oil.

    ``In New York and Boston it will be six-to-10 degrees above normal today and 10-to-15 degrees above normal tomorrow,'' said Michael Palmerino, a forecaster at Meteorlogix LLC in Woburn, Massachusetts. ``Saturday will be exceptional, with temperatures rising 15-to-20 degrees above normal. Things will then cool a bit but still exceed the norm.''

    The average high temperature in New York at this time of year is 38 degrees Fahrenheit (3 Celsius) and in Boston it is 36 degrees (2 Celsius), Palmerino said. The average low in New York is 27 degrees Fahrenheit (-3 Celsius) and in Boston it is 22 degrees (-6 Celsius), he said.

    Heating oil for January delivery fell 4.77 cents, or 3.7 percent, to $1.2297 a gallon in New York. Prices rose 35 percent this year.
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