By OGJ editors
HOUSTON, Apr. 24 -- Energy futures prices tumbled on the New York Mercantile Exchange Wednesday after the US Energy Information Administration's report of a massive build in crude stocks caused by record imports.
The inventory surge came as the Organization of Petroleum Exporting Countries met Thursday.
OPEC agreed to reduce actual OPEC production by 2 million b/d to 25.4 million b/d, effective June 1. That decision will be reviewed during a June 11 special meeting in Doha, Qatar.
In the interim, OPEC said it will closely monitor the market, in particular the timing and level of the expected recovery in Iraqi oil production and its impact on the overall supply-demand balance in the market.
Meanwhile, EIA data released Wednesday showed crude oil stocks up 9 million bbl for the week ending Apr. 18. The climb was attributed to an increase in imports of 1.209 million b/d. Total weekly imports were 10.614 million b/d.
The report surprised traders, who had expected a modest increase. Traders said the inventory numbers dampened prices as the nation enters the high-demand summer driving season.
The June contract for benchmark US light, sweet crudes plunged $1.34 to $26.65/bbl Wednesday on the New York Mercantile Exchange, while the July position lost $1.15 to $26.33/bbl.
Refined products also ended lower. Unleaded gasoline for May delivery declined 2.93¢ to 84.81¢/gal. Heating oil for the same month dropped 2.79¢ to 75.07¢/gal.
The May natural gas contract declined by 7.6¢ to $5.57/Mcf on NYMEX. Enerfax Daily said gas prices declined along with oil prices in early trading Wednesday, and then gas prices fell into a holding pattern for much of the trading session.
"But few predict much downside near term despite milder weather forecasts, expecting longer-term bullish fundamentals like sagging production and record low storage to underpin prices heading into the summer cooling season," Enerfax Daily reported Thursday.
Natural gas storage injections totaled 61 bcf for the week ended Apr. 18. The 61 bcf was was above the 5-year average of 25 bcf but below last year's 69 bcf injection number for the same period.
The latest results were higher than the Banc of America LLC's estimates of 45-48 bcf injection, said analyst James K. Wicklund.
He said that refilling storage remains problematic, adding that injections still need to average more than 20 bcf/week above the 5-year average to get storage levels back to 3 tcf.
"As a result, if drilling activity does not pick-up to counter. . .declines in natural gas production, refilling storage before next winter becomes problematic. Companies' belief of sustainable prices, not higher gas prices, is needed to continue to boost activity, and with a gas price futures curve averaging above $4.50 through April 2009, we remain optimistic on the long-term natural gas fundamentals," Wicklund said.
The US drilling rig count is up 17% from Jan. 1, and that needs to be sustained, he said. Meanwhile, the industry anticipates that the US rig count will continue climbing.
"The most likely scenario is continued increased drilling to try and balance the economics of natural gas supply and demand," Wicklund said.
In London, the June contract for North Sea Brent oil settled at $24.26, down $1.20 from Tuesday's close on the International Petroleum Exchange. The May natural gas contract dipped slightly by 0.2¢ to the equivalent of $2.60/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes slipped $1.1¢ to $25.14/bbl Wednesday.