MARKET WATCH
Crude prices end 8-day retreat in New York market

Sam Fletcher
Senior Writer

HOUSTON, Sept. 14 -- Crude futures prices inched higher Sept. 13, capping a plunge over the 8 previous trading sessions to near a 6-month low in the New York market, after officials reported the biggest drop in commercial US crude inventories in 2 months.

The US Energy Information Administration said US crude stocks fell 2.9 million bbl to 327.7 million bbl during the week ended Sept. 8 (OGJ Online, Sept. 13, 2006). Gasoline stocks inched up by 100,000 bbl to 207 million bbl in the same period. Distillate fuel inventories jumped by 4.7 million bbl to 144.6 million bbl, with ultralow-sulfur fuel accounting for most of the increase, while heating oil rose by 1.4 million bbl.

"After the carnage over the past week, some semblance of order returned to the oil markets," said analysts in the Houston office of Raymond James & Associates Inc. "Oil was again up in early morning trades [Sept. 14], as the [EIA] weekly report showed crude inventories falling. Also, the US urged the United Nations to impose sanctions on Iran, raising the temperatures in the long-running dispute."

Some analysts see the recent sharp drop in crude futures prices as marking the end of the previously bullish energy market. Others are skeptical, however. "Most of the mass of reasons put forward as to why sentiment should shift and prices fall are not exactly slam-dunk factors," said Paul Horsnell at Barclays Capital Inc., London.

For instance, he said, the Sept. 11 meeting in Vienna of ministers of the Organization of Petroleum Exporting Countries did not signal "simple maintenance of the status quo," as some observers assumed. Statements issued by OPEC at the end of previous meetings "explicitly expressed a commitment to the 28 million b/d target ceiling or clearly stated that ministers had chosen to maintain the status quo. The latest communiqué contains no such statement," Horsnell noted.

"There is a signal that [OPEC] output will fall further if needed, without necessarily having to make explicit short-term changes in the target ceiling. Indeed, combine the lack of commitment to the ceiling with the observations made in the communiqué first that supply exceeds demand, and second that OPEC will balance supply and demand, and there is the strong implication that actual output cuts are a base case unless prices rebound," he said.

"The line is being drawn not very far below current price levels, if not at current price levels. While prices in the $70s were not going to be proactively defended, the $60s are a different proposition," Horsnell said.

Energy prices
The October contract for benchmark US light, sweet crudes regained 21¢ to $63.97/bbl Sept. 13 on the New York Mercantile Exchange. The November contract climbed 8¢ to $64.98/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 21¢ to $63.98/bbl. Unleaded gasoline for October delivery inched up by 0.1¢ but remained virtually unchanged at $1.55/gal on NYMEX. Heating oil for the same month, however, slipped by 1.69¢ to $1.74/gal.

The October natural gas contract lost 12.5¢ to $5.45/MMbtu on NYMEX. On Sept. 14, EIA reported the injection of 108 bcf of natural gas into US underground storage during the week ended Sept. 8. That was above the consensus of Wall Street analysts and up substantially from 71 bcf the previous week and 89 bcf during the same period a year ago. US gas storage now exceeds 3 tcf, up by 339 bcf from the same period last year and 341 bcf above the 5-year average.

In London, the October IPE contract for North Sea Brent crude was unchanged at $62.99/bbl. However, the October contract for gas oil fell by $20.25 to $556.25/tonne.

The average price for OPEC's basket of 11 benchmark crudes dropped $1.29 to $59.08/bbl on Sept. 13

Contact Sam Fletcher at samf@ogjonline.com.

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