OIL FUTURES: Crude Ends Lower, Even As Pipeline Outage Continues

Crude-oil futures eased lower Tuesday as uncertainty about the status of a major Canada-U.S. oil pipeline weighed on the market.

Light, sweet crude oil for October delivery settled 39 cents, or 0.5%, lower at $76.80 a barrel on the New York Mercantile Exchange. Brent crude oil on the ICE futures exchange was recently up 11 cents, or 0.1%, at $79.14 a barrel.

Oil prices are being supported at their current level by the continued shutdown of Enbridge Inc.'s (ENB) Line 6a pipeline, which can carry up to 670,000 barrels a day of Canadian crude to U.S. refiners. A long outage could begin to drain bloated U.S. oil inventories, which, when combined with fuel stockpiles, sit at their highest point since the early 1980s.

Futures are still more than $2 a barrel above where they stood before Enbridge announced the shutdown after discovering a leak late Thursday.

On Tuesday, however, futures took a small hit on reports that Enbridge could restart the pipeline without the prior approval of U.S. regulators, potentially resulting in a faster return to service. But the company later told Dow Jones that regulators would need to give the go-ahead for a restart.

"It was a little bit of noise in the market; there were no major shifts," said Tim Evans, an analyst with Citi Futures Perspective, speaking about the pipeline's shifting restart prospects.

The latest U.S. oil and fuel inventory data, for the week ended Sept. 10, are due out Wednesday from the Energy Information Administration. Oil inventories are expected to drop 2.5 million barrels, while gasoline stocks are seen falling 1.1 million barrels, according to a Dow Jones survey of analysts. Distillate stocks, including heating oil and diesel, are seen rising 200,000 barrels, while refinery utilization is expected to decline 0.7 percentage point to 87.5% of capacity.

On Tuesday after settlement, the American Petroleum Institute, an industry group, reported a 3.3-million-barrel increase in oil inventories, a one-million-barrel drop in gasoline stocks and a 1.5-million-barrel decline in distillate inventories. Refinery utilization was estimated at 85.6% of capacity.

Oil prices were also under pressure from evidence of sluggish growth in Germany's economy. The ZEW economic research institute cut its closely watched expectations index for Germany's economy to -4.3 in September, from 14.0 in August. The index represents a "flattening" of activity in Germany's economy, Europe's largest.

The index served as a reminder that not all large economies are growing at the rate of China's, where a 13.9% year-on-year jump in August industrial production sent crude-oil futures as high as $78.04 a barrel on Monday.

U.S. retail sales data for August failed to provide a boost, with the 0.4% increase slightly exceeding expectations.

Front-month October reformulated gasoline blendstock, or RBOB, settled 1.16 cents, or 0.6%, lower at $1.9690 a gallon. October heating oil settled 0.61 cent, or 0.3%, higher at $2.1288 a gallon.

Afghans Pull Money From Weakened Bank

KABUL, Afghanistan — One of the principal owners of the Afghan bank at the center of an accelerating financial crisis here said depositors had withdrawn $180 million in the past two days. He predicted a “revolution” in the country’s financial system unless the Afghan government and the United States moved quickly to help stabilize the bank.

Khalil Frozi, one of the two largest shareholders of Kabul Bank, said reports indicating that the institution had lost as much as $300 million were overstated. But he predicted that if Afghan depositors continued to withdraw their money at the current rate, then Kabul Bank would almost certainly collapse — undermining confidence in the nascent financial system Afghanistan has been trying to build with American help.

“If people lose their trust in the banks, then we will have revolution in our financial system,” Mr. Frozi said in an interview. “We need the Afghan government and the U.S. government to support us. That is essential.”

The news came as Afghan leaders took the first steps toward arresting the panic, which began earlier this week when the country’s top banking officials demanded the resignations of Mr. Frozi, the bank’s chief financial officer, and of the bank’s chairman, Sherkhan Farnood.

Afghan and American officials say the two men presided over the bank in a reckless and free-wheeling manner, doling out millions to allies of President Hamid Karzai and pouring money into risky investments that went bust. The bank’s nosedive — and the corruption associated with it — are posing a direct challenge to the country’s fledgling financial system, which was built under American guidance following the collapse of the Talibangovernment in 2001.

In a news conference here, President Hamid Karzai promised that the Afghan government would guarantee all deposits at the threatened institution. He said the Afghan government had already given Kabul Bank more than $100 million to ensure that it could pay the salaries of some 250,000 public employees. The bank administers the payments for the government.

“People don’t need to be worried,” Mr. Karzai said. “We’ve got enough cash to support the bank.”

“Even if the whole financial system in Afghanistan collapses, we have enough money to support it,” he said.

Mr. Karzai, who appeared with Secretary of Defense Robert M. Gates, said the crisis had been invented by the Western press, which he said had raised baseless fears among ordinary Afghans.

“The Western press has been covering it in a negative and provocative way,” he said of Kabul Bank’s troubles.

Still, it was not clear that the Afghan government had the legal authority to guarantee Afghan deposits, or the financial wherewithal to shore up the banking system if confidence were to collapse.

Mr. Frozi said Kabul Bank retained about $1.1 billion in deposits. That figure alone would represent a quarter of Afghanistan’s foreign currency reserves, which Mr. Karzai said totaled $4.8 billion.

If the loss of confidence spread beyond Kabul Bank, it seemed almost certain to strain the resources of the Afghan government —and make it more likely that the Americans would be forced to intervene. There were no indications yet that the panic was spreading, but American and Afghan officials say privately that other Afghan banks might face similar troubles.

For now, American officials ruled out any direct financial assistance. They said they were providing technical assistance to the Afghan government but nothing more.

“We are taking no steps to bail out Kabul Bank,” a White House spokesman said. “We support the Afghan Central Bank’s efforts to uphold international standards on transparency and its decisive action in response to reports of fraud at the Kabul Bank.”

Most Afghans do not keep their money in the banking system, and Kabul Bank is tiny by international standards. But creating a credible and stable banking system is an important goal of the American-led effort in the country, which is seeking to help Afghanistan develop a modern economy.

Kabul Bank, one of the biggest private financial institutions that sprang up after the fall of the Taliban, stands at the very center of Afghanistan’s political and economic elite. A brother of Mr. Karzai, Mahmoud, is a major shareholder, as is Haseen Fahim, the brother of the country’s vice president. The bank lent Mr. Fahim, a prominent businessman, as much as $100 million, officials say.

The bank helped finance President Karzai’s re-election campaign last year, giving him as much as $14 million, according to former senior Afghan officials. Mr. Karzai, in turn, chose the bank to administer much of its payroll, which Mr. Frozi desribed as one of the bank’s most lucrative fields of business
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