MARKET WATCH
Growing US stocks of petroleum products depress oil prices

Sam Fletcher
Senior Writer

HOUSTON, Oct. 23 -- Futures prices for crude and petroleum products continued to fall Wednesday, following government and industry reports of builds in US inventories of gasoline and distillates.

The American Petroleum Institute said late Wednesday that US gasoline stocks jumped by more than 3 million bbl to 198.4 million bbl during the week ended Oct. 17, while distillates were up by 2.7 million bbl to 128.4 million bbl. However, it said, US oil inventories fell by 1.9 million bbl to 295.3 million bbl during the same period.

The US Energy Information Administration earlier reported a 1.4 million bbl increase in US gasoline inventories to 196 million bbl during that period. US distillate stocks were up by 2.6 million bbl to 132.4 million bbl, with increases in both diesel and heating oil, it said, while US oil stocks fell by 1.8 million bbl to 288.2 million bbl.

Strange data
EIA's latest report of US inventories is "a strange set of data, which run against several recent trends," said Paul Horsnell, head of energy research at Barclays Capital Research, a division of Barclays Bank PLC, London. "While the recent pattern has been for crude oil tightness to lessen while oil product tightness remained fairly firm, this week the data moved the other way."

Previously, said Horsnell, "A trend of fairly sharply rising oil inventories had been generally taken for granted, but now there is some reason to question it. Crude imports are falling, with the 4-week average [of 9.7 million b/d] moving down to its lowest level since mid-July. At the same time, refinery runs of crude oil are on the increase."

EIA reported crude input into US refineries averaged 15.3 million b/d last week, up 237,000 b/d from the previous week. "This is the second week in a row in which crude oil refinery inputs have increased, which may signal that refineries are beginning to return from their fall maintenance," said EIA officials.

They also reported US oil imports averaged 9.5 million b/d last week, down by 506,000 b/d from the previous week. "It appears that crude oil imports from Venezuela dropped significantly last week," EIA said.

Horsnell concluded "that any idea of rapidly rising crude inventories has to be abandoned or at least that the 2001 peaks of above 320 million bbl look too far away to be achievable particularly quickly. It does also look as if the pressure on the supply chain is a constricting one and that the trend for refinery utilization is upward.

"Put all that together, and the end of the rising crude oil inventory trend is certainly coming closer, even if [these latest data] prove not to be the exact turning point," he said.

EIA's figures for US distillate stocks "look a bit more like an anomaly," Horsnell said. "This is too large a movement to be consistent." He noted that "in the key area for heating oil demand, the Central Atlantic states, the situation was little changed, leaving inventories a little tighter than normal and still less than one would want unless the winter was likely to be a mild one."

In a separate report Wednesday, API said the average US retail price for regular gasoline increased by 0.3¢ last week to $1.571/gal as of Oct. 20, up by 11.3¢ from the same period last year. The average US retail price for all types of gasoline inched up by 0.1¢ to $1.612/gal last week.

"This is the first time in 8 weeks that gasoline prices did not fall," API said.

EIA said the average US retail price for diesel increased for the third week in a row, up by 1.9¢ to $1.502/gal, an increase of 3.3¢/gal from year-ago levels.

Futures markets mixed
However, unleaded gasoline for November delivery plunged by 2.75¢ to 82.13¢/gal Wednesday on the New York Mercantile Exchange, while heating oil for the same month lost 0.99¢ to 81.6¢/gal.

The new front-month December contract for benchmark US sweet, light crudes declined by 40¢ to $29.92/bbl Wednesday on NYMEX, as the January position retreated by 33¢ to $29.62/bbl. On the cash spot market, West Texas Intermediate at Cushing, Okla., lost 45¢ to $29.73/bbl.

Oil markets last week gave up about a third of the price gained since Sept. 24 when members of the Organization of Petroleum Exporting Countries announced they would reduce production quotas by 900,000 b/d to 24.5 million b/d, effective Nov. 1, Horsnell said. Despite recent price volatility, he said, "For the moment at least, we now suspect the market is a bit stuck. Until some new dynamic arises, we can see no fundamental basis for WTI prices being able to sustain a rise above $31/bbl or a fall below $28/bbl."

Meanwhile, the November natural gas contract rose by 4.9¢ to $4.92/Mcf Wednesday on NYMEX, "driven by a rallying cash market despite some technical selling, weaker crude [prices], and expectations of another big storage build," said analysts Thursday at Enerfax Daily. "The temperature change in the Midwest and Northeast for the next day or so is pretty significant, which is what drove cash [prices] higher, but there doesn't seem to be much follow-through cold weather, so don't expect the rally to carry far," they warned.

EIA early Thursday reported 84 bcf of natural gas were injected into US underground storage last week, up from 81 bcf the previous week and 33 bcf during the same period a year ago. The latest injection figure was above the consensus of Wall Street analysts and pushed US gas storage past 3 tcf into the "comfort zone" for anticipated winter demand. US gas storage is still down by 133 bcf from year-ago levels and 25 bcf below the 5-year average for this period, however.

In London, the December contract for North Sea Brent oil lost 35¢ to $28.28/bbl Wednesday on the International Petroleum Exchange. The November natural gas contract lost 2.6¢ to the equivalent of $4.60/Mcf on IPE, but oil gas for the same month increased by $1.50 to $258.50/tonne on IPE.

"Natural gas prices on UK and US exchanges moved in dramatically different ways last week," noted Horsnell. "UK natural gas futures prices outperformed all other commodities contracts in rising by 7.7% [to their highest level this year], while US natural gas futures showed the weakest performance across commodities in falling by 11%."

The average price for OPEC's basket of seven benchmark crudes lost 24¢ to $28.16/bbl Wednesday, marking the 10th consecutive trade day that price has exceeded the group's target band of $22-28/bbl.

However, Horsnell said, "We would not expect the continued robustness of prices to lead to any additional [oil] supply from OPEC members, even if prices were to extend their run above the target band."

Contact Sam Fletcher at samf@ogjonline.com

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