Energy prices were volatile during the week ended Nov. 4 as traders reacted to reports of increased crude stocks, warmer-than-normal weather, and continued recovery of storm-damaged oil and gas production and processing facilities along the US Gulf Coast.
"Oil prices finished down just slightly after a volatile week with a greater-than-anticipated build in US crude and gasoline inventories along with a smaller-than-expected drop in distillate inventories pushing [West Texas Intermediate] spot prices to a 3-month low at mid-week. However, oil prices rebounded after job data, even though weaker than expected overall, revealed stronger-than-expected gains in the construction, manufacturing, and services industries," said Robert S. Morris at Banc of America Securities LLC, New York. The December contract for benchmark US light, sweet crudes closed at $60.58/bbl on the New York Mercantile Exchange Nov. 4, down $1.20 for the day. On the US spot market, WTI at Cushing, Okla., lost the same amount to $60.59/bbl.
"Federal Reserve Chairman Alan Greenspan stated . . . that the US economy is poised for continued growth with economic fundamentals remaining firm. This was reflected by recovering gasoline demand even though the focus for the energy complex has now turned to heating oil inventories and when winter temperatures will hit, while around 1 million b/d of US refining capacity still remains off-line although the shut-in offshore Gulf of Mexico oil production recovered to about 780,000 b/d vs. roughly 1 million b/d 1 week prior," Morris said. "Meanwhile, forecasts are calling for continued above-normal temperatures throughout much of the country [through Nov. 11], which could weigh further on commodity prices until, perhaps, the first forecast for sustained winter temperatures is issued."
For the first time in 3 months, front-month crude futures prices fell below $60/bbl on the New York market at the end of October because of a combination of adequate supplies and warmer weather.
The Energy Information Administration said commercial US crude inventories increased by 2.7 million bbl to 319.1 million bbl during the week ended Oct. 28, just prior to the official Nov. 1 start of the winter heating season. Gasoline stocks rose by 1 million bbl to 196.9 million bbl during the same period. However, distillate fuel inventories dipped by 200,000 bbl to 120.9 million bbl, with a decline in heating oil outweighing an increase in diesel fuel.
Imports of crude into the US increased by 103,000 b/d to 10.1 million b/d during the same week. Crude input into US refineries gained 346,000 b/d to 13.9 million b/d. The system was operating at 82.5% of capacity as more Gulf Coast refiners were able to begin operating again.
US heating oil inventories "fell by 1 million bbl . . . at a time when they are normally constant, even as the market has worried that mild weather is depressing demand," said Paul Horsnell of Barclays Capital Inc., London, in a Nov. 2 report.
"There are some significant factors on the move in the oil market at a global level at the moment. Over the past week alone, there have been some stronger demand signals, some weaker supply signals, and also the deepening of a more uncertain geopolitical environment in both Iran and Iraq," Horsnell said. "However, for the moment the oil market has become somewhat introspective again."
He said, "The drivers of sentiment have been mild weather on the East Coast of the US, and the continuing rattling of the skeletons of a perceived weakness in demand. The former is not of major importance at the start of November given the seasonal pattern of heating oil demand, and we suspect the latter is primarily a statistical mirage, but the perception of weakness remains."
US demand has been distorted "by the impact of the hurricanes on the mechanics of the data," Horsnell said. "However, over time some of the dust has been clearing, and the demand picture does not seem to be as bad as the view held in sentiment. The latest weekly reading for implied gasoline demand is 9.045 million b/d, which continues the improvement in recent weeks. A single week's data can be fraught with noise, but we would note that the last weekly reading in October 2004 was 8.977 million b/d, i.e. the gap in the data has been closed. With the US economy moving forward fairly strongly, and with retail gasoline prices now below their August average and well off the peaks, it is hard to be particularly negative about demand growth prospects," he said.
(Online Nov. 7; author's e-mail: firstname.lastname@example.org)