Market watch: Record low US oil stocks spark jump in energy futures prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 3 -- Energy futures prices jumped Thursday on the New York Mercantile Exchange with reports that US oil inventories had fallen to record lows with disruption of Venezuelan imports and forecasts of more seasonal and stormy weather in the US.

The US Energy Information Administration and the American Petroleum Institute reported Thursday that US oil stocks fell by 9.1 million bbl last week. API said US oil imports dropped by 1.2 million b/d to 7.7 million b/d during that same period, while imports of petroleum products were down 604,000 b/d to 2.3 million b/d (OGJ Online, Jan. 2, 2003).

A general strike now in its fifth week has slashed Venezuela's oil production to less than 200,000 b/d from 3.1 million b/d in November. Venezuela's oil exports, primarily to US refiners, averaged just over 230,000 b/d in December, down drastically from 2.7 million b/d in November.

The long-running strike is aimed at forcing Venezuelan President Hugo Chávez out of office. Following a meeting in Brazil with Cuban leader Fidel Castro, Chávez claimed Thursday that his administration has broken the strike and increased production by Petroleos de Venezuela SA (PDVSA), the state oil company, to 800,000 b/d. He said production would be restored to 3 million b/d in 45 days.

Chávez attended the inauguration Wednesday of Luiz Inácio Lula Da Silva, Brazil's new president, and asked him to send experts from Petroleos Brasileiro SA (Petrobras), the state oil company, to help restore PDVSA production.

However, PDVSA strike leaders claimed that production is still reduced to a relative trickle of less than 200,000 b/d and that it would take at least 4 months to bring the company up to previous production levels when the strike ends. They also predicted that, with production at such a low level, Venezuela's oil exports would grind to a halt as soon as the 8 million bbl of oil in storage at export terminals is emptied.

Meanwhile, Chávez has arranged imports of 1.72 million bbl of gasoline from Brazil, Russia, and Trinidad and Tobago for Venezuela's domestic market, which is estimated at 200,000 b/d. The strike has virtually closed all refineries in Venezuela.

Such "work-arounds on the part of Chávez help the leader maintain his hard line stance against the strikers. However, his claims that the country can be at full production of 3 million b/d within 30-45 days are likely too aggressive still," said Tyler Dann, an industry analyst in the Houston office of Banc of America Securities LLC.

The February contract for benchmark US light, sweet crudes jumped 65¢ to $31.85/bbl Thursday on the New York Mercantile Exchange, more than recouping Tuesday's loss. The March position increased 51¢ to $31.10/bbl. Unleaded gasoline for February delivery gained 1.33¢ to 88.3¢/gal, while heating oil for the same month was up 1.23¢ to 88.09¢/gal.

Some analysts said prices would have soared higher if not for speculation that other members of the Organization of Petroleum Exporting Countries might increase their production by 500,000 b/d to help offset the loss of Venezuela's oil and drive down high prices.

However, Dann said his company's "reactionary OPEC" analysis "suggest that the group as a whole increases (or) decreases production in response to oil price movements on a 1-month lag, with a ratio of 267,000 b/d of supply increase (or) reduction for every $1/bbl shift in the prior-month's OPEC basket price." In December, OPEC's basket price averaged $27.86/bbl, still within the group's target range of $22-28/bbl. OPEC's basket price increased 20¢ Thursday to $30.05/bbl.

Moreover, Dann said, "capacity restraints faced by much of the organization outside of Saudi Arabia" would prevent a substantial production increase by most OPEC members.

Mexico and Venezuela are the main suppliers of heavy oil to US Gulf Coast refineries designed to handle only that feedstock. Venezuela accounts for 42% of heavy crude supplies to those refineries.

Saudi Arabia produces heavy oil. However, tanker shipments from the Middle East take 5 weeks to complete, compared with 5 days from Venezuela (OGJ Online, Dec. 17, 2002).

Citgo Petroleum Corp., PDVSA's US refining and marketing affiliate, has been hardest hit by the strike since it relies on Venezuela for about 50% of its crude under long-term contracts. However, PDVSA Pres. Alí Rodríguez Araque denied reports Thursday that PDVSA plans to sell or otherwise dispose of Citgo or any of its assets.

Natural gas shot past $5/Mcf again Thursday, with the February contract jumping 46.2¢ to $5.25/Mcf. "Buying, driven by locals and funds, pushed the market toward highs last seen in mid-December," analysts at Enerfax Daily reported Friday. "Besides the cold forecast, funds were busy buying after picking up end-of-year profits. It is unusual that the market went up so high, but with the volatility of late, it is not totally unexpected."

EIA reported Friday that 123 bcf of gas was withdrawn from US underground storage during the week ended Dec. 27. That was up from 95 bcf the previous week, but down from 127 bcf during the same period last year. US gas storage now stands at 2.4 tcf, down 572 bcf from year-ago levels and 95 bcf below the 5-year average.

In London, the February contract for North Sea Brent oil gained 77¢ to $29.43/bbl on the International Petroleum Exchange. The February natural gas contract jumped 32.3¢ to $3.98/Mcf on IPE.

Contact Sam Fletcher at samf@ogjonline.com.

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