MARKET WATCH
Energy prices mixed as US inventories rise

Sam Fletcher
Senior Writer

HOUSTON, Feb. 24 -- Energy prices were mixed Feb. 23 following a report of continued increases in US inventories of crude and gasoline.

The US Energy Information Administration said commercial inventories of US crude increased by 1.1 million bbl to 326.7 million bbl in the week ended Feb. 17. US gasoline stocks inched up by 100,000 bbl to 225.6 million bbl, the highest level since June 4, 1999. Distillate fuel inventories dropped 1.3 million bbl to 135.6 million bbl in the same period. EIA subsequently reported the withdrawal of 123 bcf of natural gas from US underground storage in the week ended Feb. 17, compared with withdrawals of 102 bcf the previous week and 88 bcf during the same period last year. US gas storage now stands at 2.1 tcf, up by 370 bcf from a year ago and 694 bcf above the 5-year average (OGJ Online, Feb. 23, 2006).

Traders recently have shrugged off civil unrest that has curtailed Nigeria's production by 455,000 b/d, as well as confrontations between the US and Iran over Iran's proposed nuclear program.

However, they are more likely to react to a terrorist attack Feb. 24 on Saudi Arabia's Abqaig production and processing center. Saudi security and Saudi Aramco employees thwarted the attack by suicide bombers who stormed the plant in two cars. There was an explosion and brief fire at a pipeline, but operations were not affected, officials reported (OGJ Online, Feb. 24, 2006). That facility processes two-thirds of the kingdom's oil production and handles most of its crude exports through the Persian Gulf.

Meanwhile, EIA said it expects crude prices to remain relatively high despite large US inventories. With energy prices still in contango—with prices of subsequent monthly crude futures contracts progressively higher than the front-month contract, there's an economic incentive for inventory holders to store more oil as protection against possible supply disruptions.

In a separate report Feb. 24, Ronald J. Barone, managing director of equity research for the Natural Gas & Electric Utilities Group of UBS Securities LLC, New York, warned of additional mergers and consolidations of gas utilities this year. "As carrying costs have risen with higher gas prices early in the year and with gas consumption per customer falling off due to efficiency gains, many utilities have felt the pinch. In markets with an abundance of utilities but a limited customer base, consolidation appears to be the most favorable means of sustaining growth and surviving," he said.

Energy prices
The April contract for benchmark US light, sweet crudes lost 47¢ to $60.54/bbl on the New York Mercantile Exchange on Feb. 23. The May contract dipped by 21¢ to $62.04/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., increased by 31¢ to $58.33/bbl. Gasoline for March delivery gained 3.89¢ to $1.51/gal on NYMEX. Heating oil for the same month climbed by 1.05¢ to $1.66/gal.

The March natural gas contract bumped up by 17.5¢ to $7.46/MMbtu on NYMEX with short-covering erasing earlier losses as traders bought futures contracts to preserve gains in expiring options contracts, said analysts at Enerfax Daily.

In London, the April IPE contract for North Sea Brent crude advanced by 10¢ to $60.54/bbl. Gas oil for March gained $7.50 to $528.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined by 54¢ to $55.18/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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