NATION Fears about oil supply are overblown, analysts say

Hype, not the economy, is driving higher oil prices, an energy official said.
WASHINGTON (AP) -- Concerns about record-low supplies underpin today's high oil prices, although some experts argue these fears are overblown and unnecessarily harmful to consumers.
"The biggest myth in oil markets right now is that we have precariously low levels of inventory," said Fadel Gheit, senior energy analyst at Oppenheimer & amp; Co. in New York.
"This is a tremendous disservice to consumers," Gheit added. "Traders are using the government numbers to put the fear factor in the market."
The Energy Department reported last week that commercial supplies of crude dropped to their lowest level since 1974, so there's no disputing that inventories are lean by historical standards. However, advances in information technology and logistics have enabled the oil industry -- like much of the U.S. economy -- to operate efficiently with less of an inventory cushion than ever before.
Analysts say the industry has systematically reduced inventories in recent decades. Capital once spent on fuel storage is directed to increasingly expensive, and lucrative, oil exploration and production activities, giving investors more bang for their bucks.
Tight supplies
Supplies are especially tight because oil executives are reluctant to build inventories when prices are high, preferring to use up stocks and wait for prices to drop.
Although this leaves less margin for error for refiners, which need a steady stream of oil to make gasoline, heating oil and jet fuel, industry officials say fears of shortages are exaggerated, either out of ignorance or greed.
"There's really no good economic reason why crude prices are so high right now," said Mary Rose Brown, a spokeswoman for Valero Energy Corp., one of the nation's biggest refiners. "It's just the hype in the market."
Oil futures have been valued above $30 a barrel for much of the past year and higher fuel prices have squeezed the pockets of motorists, homeowners and energy-intensive industries.
Crude for March delivery settled at $33.05 per barrel Friday afternoon on the New York Mercantile Exchange.
A recovering economy, the weak dollar and recent cold snaps in the Northeast have lent support to prices, yet commodity traders and government officials point to low supplies of crude as the underlying factor. They say a delayed shipment here or a refinery shutdown there could throw the market into turmoil on short notice.
For the week ended Jan. 23, U.S. oil inventories stood at 263.7 million barrels. That is the lowest level since April 15, 1974, when inventories stood at 256.4 million barrels, according to Energy Department statistics.