MARKET WATCH
Energy prices fall with bearish inventory reports

Sam Fletcher
Senior Writer

HOUSTON, Feb. 5 -- Energy prices tumbled Wednesday with government and industry reports of bigger-than-expected increases in US crude inventories.

Traders earlier were expecting a bearish build of 500,000-1 million bbl in US crude stocks for the week ended Jan. 30 (OGJ Online, Feb. 4, 2004).

EIA reports jump
However, the US Energy Information Administration said Wednesday that commercial oil stocks jumped by 7.9 million bbl to 271.6 million bbl in that period. Even so, it said, US crude stocks remained 28.9 million bbl below the 5-year average for that time of year.

US distillate stocks fell by 6.8 million bbl to 124.2 million bbl during the same weekly period, with large decreases in both diesel fuel and heating oil. Gasoline inventories declined by 400,000 bbl to 205.6 million bbl, down by 9.5 million bbl below the 5-year average, said EIA officials.

The American Petroleum Institute's report Wednesday on US inventories for the week ended Jan. 30 was more conservative, citing a jump of 6.3 million bbl to 274.5 million bbl of crude. US distillate stocks fell by 4.8 million bbl to 128.8 million bbl, API said, while gasoline inventories increased by 3.7 million bbl to 205.2 million bbl.

EIA cited "a big increase in [crude] imports and a decline in refinery inputs." US imports of crude increased by almost 1.9 million b/d to nearly 10.5 million b/d during the week ended Jan. 30—"the fourth largest weekly average since at least 1990," EIA officials said.

During the same period, crude inputs into US refineries were down by 202,000 b/d to 14.5 million b/d. "Most notable was that crude oil refinery inputs into the Gulf Coast averaged below 7 million b/d for the first time since the week ended Feb. 28, 2003," EIA said.

Demand remains high
However, Paul Horsnell, head of energy research, Barclays Capital Inc., London, noted that US demand for gasoline "is running higher, and imports are running considerably lower," compared with a year ago. "With maintenance having taken 5% off the level of refinery utilization over the past month, there is not a lot of room for maneuver within the system," he said. "Last year there were two major gasoline price spikes, and the odds of another this year seem to be growing."

Meanwhile, he said, "The heating oil market is now in the middle of the normal period of fastest inventory draw down." Horsnell said, "The rate of draw down has been faster than normal and is keeping pace with what was the coldest part of the US winter last year. Indeed, in the key Central Atlantic states, the draw down has been even faster than a year ago."

As a result, he said, "The heating oil market might have relaxed a little too early, running some risk of a repeat of last year's late season surprise."

Energy prices
The March contract for benchmark US sweet, light crudes dropped by $1 to $33.10/bbl Wednesday on the New York Mercantile Exchange, while the April position lost 83¢ $31.99/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., also lost $1, down to $33.13/bbl Wednesday.

Heating oil for March delivery plunged by 2.45¢ to 88.97¢/gal on NYMEX. Gasoline for the same month lost 1.58¢ to 98.57¢/gal Wednesday.

However, the March natural gas contract inched up by 0.03¢ to $5.65/Mcf on NYMEX, "as early buying on a stronger [spot]cash market and colder forecasts for next week were offset by technical selling at resistance," reported analysts Thursday on Enerfax Daily. "Technical selling kicked in early when the natural gas market stalled at resistance at this week's high of $5.79[/Mcf], but activity was light with most traders waiting for [the latest gas] storage report."

Early Thursday, EIA reported 236 bcf of natural gas were withdrawn from US underground storage during the week ended Jan. 30. That was the fifth largest weekly withdrawal of gas on record, said Robert S. Morris at Banc of America Securities LLC, New York.

It left 1.8 tcf of natural gas in storage, 306 bcf more than a year ago and 60 bcf above the 5-year average for this time of year, said EIA officials.

In London, the March contact for North Sea Brent crude lost 62¢ to $28.88/bbl Wednesday on the International Petroleum Exchange. Gas oil for February delivery lost $8.75 to $251.75/tonne. However, the March natural gas contract gained 3.2¢ to $3.98/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' declined by 64¢ to $28.55/bbl Friday, still above the group's price target of $22-28/bbl. However, the 10 active OPEC members, minus Iraq, are 90% likely to continue their present production quota of 24.5 million b/d at their Feb. 10 meeting in Algeria, said Tyler Dann, an analyst in the Houston office of Banc of America Securities.

Contact Sam Fletcher at samf@ogjonline.com

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