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Energy prices fluctuate with weather and supplies

Sam Fletcher
Senior Writer

Energy prices seesawed up one day, down the next Nov. 11-17 as traders reacted to changes in weather and reports of US petroleum inventories. Prices rebounded Nov. 16 as reports of major declines in US stocks of crude and gasoline during the week ended Nov. 11 undermined previous speculation of demand destruction because of high costs to consumers.

But then the New York front-month crude futures contract plunged to a 5-month low on Nov. 17 with a separate report of more natural gas injected into US storage, signaling ample supply for the winter heating season.

Demand destruction questioned
"Total refined product demand rose by about 400,000 b/d, or 2%, [in the week ended Nov. 11], due to a large (860,000 b/d) increase in gasoline consumption. This is the highest weekly demand number we've seen since late August, when Hurricane Katrina made landfall," said analysts at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va. "We expect imports to recede from recent record highs and seasonally greater heating oil demand during the winter months to result in a strengthening of refining margins over the coming weeks," they said.

Paul Horsnell of Barclays Capital Inc., London, said, "The US weekly data confirm the return to health of the gasoline market. Implied demand (at 9.151 million b/d) stayed above 9 million b/d for a third straight week."

Gasoline demand growth in November is on pace with August as the fastest of the year, he said. "That strength in August was due to later revisions, the original weekly data was fairly soft, whereas the November data looks strong already," Horsnell said.

The Energy Information Administration said US crude inventories plunged by 2.2 million bbl to 321.4 million bbl during the week ended Nov. 11. US gasoline stocks fell by 900,000 bbl to 200.2 million bbl during the same period. However, distillate fuel inventories gained 2.6 million bbl to 123.4 million bbl with increases in both heating oil and diesel. Imports of crude into the US were down by 884,000 b/d to 9.7 million b/d during that same period, EIA said. However, input of crude into US refineries increased by 221,000 b/d to 14.5 million b/d.

Average US refinery utilization rates rose to 86.2% from 84% previously, and total production increased by approximately 220,000 b/d. Three refineries—BP PLC's 437,000 b/d refinery in Texas City; ConocoPhillip's 247,000 b/d Belle Chasse, La., facility; and Murphy Oil Corp.'s 120,000 b/d plant at Meraux, La.—are expected to remain shut down for the next several weeks, constraining further production increases.

Meanwhile, Horsnell noted, "The flow of imports has abated, falling retail prices are ramping up demand, and the severe compression in gasoline cracks is likely to cause output to stutter at some point. In all, and despite rumors of its demise, the gasoline market seems to be well on course for health in its fundamentals."

Friedman, Billings, Ramsey, & Co. said, "The increase in gasoline demand was partially offset by a 500,000 b/d decline in heating oil consumption as relatively mild temperatures were experienced throughout most of the country. We would note, however, that winter weather generally ramps up in the later months of the year. The 4-week moving average for total demand (vs. last year) is currently 0.3%, above last week's 0.1% average, suggesting further improvement in demand."

Natural gas supplies
On Nov. 17, however, EIA reported the injection of 53 bcf of natural gas into US underground storage in the week ended Nov. 11. That was above the Wall Street consensus and compared with an injection of 51 bcf the previous week and a withdrawal of 6 bcf during the same period in 2004. US natural gas storage is at nearly 3.3 tcf, down by 179 bcf from a year ago but 40 bcf above the 5-year average for the same time of year.

Enerfax Daily quoted Bob R. Simpson, chairman and chief executive of XTO Energy Inc., as saying 5% of previous natural gas production from the US sector of the Gulf of Mexico may be permanently lost because of damage inflicted by three hurricanes this summer to Gulf Coast production and processing facilities. As a result, he said, the US market could see gas prices reach $20/MMbtu this winter.

"The East Coast will see average temperatures of about 2° colder than normal through the winter, despite a mild start to the heating season, a private forecaster predicted in a revised winter outlook," said Enerfax analysts.

(Online Nov. 18, 2005; author's e-mail:

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