MARKET WATCH
Crude prices climb; gas prices fall

Sam Fletcher
Senior Writer

Market Watch will appear next on Dec. 27, 2006.

HOUSTON, Dec. 21 -- Crude prices edged higher Dec. 20 following the Energy Information Administration's report of a larger-than-expected 6.3 million bbl drop in commercial US crude stocks to 329.1 million bbl in the week ended Dec. 15.

Because of increased production and flat demand, however, distillate fuel stocks rose for the first time in 11 weeks, up 1.2 million bbl to 133.1 million bbl, while US gasoline inventories increased for the first time in 4 weeks, by 1 million bbl to 200.9 million bbl (OGJ Online, Dec. 20, 2006). "Total refined product demand was essentially flat, up 14,000 b/d (plus 0.1%) week over week, as increased gasoline (plus 97,000 b/d) and diesel (plus 223,000 b/d) demand was offset by reduced heating oil (minus 197,000 b/d) and jet fuel (minus 8,000 b/d) consumption. During the past 4 weeks, total refined product demand has averaged 0.3% above comparable year-ago levels, with heating oil down 5.8% year-to-date vs. last year's consumption," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va.

Analysts in the Houston office of Raymond James & Associates Inc. noted larger-than-anticipated draws from US crude inventories in 9 out of the last 10 reports. The latest draw "can be attributed, in part, to the decrease in petroleum imports," they said. "Another factor is the increase in refinery utilization, which rose above the 5-year low and is now approximately in line with the 5-year utilization average. Of particular seasonal interest, heating oil inventories increased this week, remaining above last year's level. The unexpected build in distillate inventories can be partly attributed to warm weather throughout the US," said Raymond James analysts.

They added, "Long-term, we continue to believe that various international supply disruptions (for example in Nigeria), coupled with continually high geopolitical risk (especially involving Iran), are likely to provide support and keep oil prices at elevated levels over the foreseeable future."

Meanwhile, exports of crude from Saudi Arabia to European members of the Organization for Economic Cooperation and Development continue to decline but are fully offset by increased imports from Iran, Iraq, and Russia. "While Russia remains structurally the highest import source [for Europe], Saudi Arabia has lost the second spot to Libya and is almost at par with Iran. Imports from Azerbaijan have also started to increase and are offsetting lower imports from Algeria," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Although the US remains the main market for European exports of gasoline, Mexico is showing the largest increase in imports of European gasoline. "Exports to Iran have been reduced, but the combination of crude imports and gasoline exports continues to make Iran an important oil partner for Europe," Jakob said.

Energy prices
The February contract for benchmark US sweet, light crudes increased by 26¢ to $63.72/bbl Dec. 20 on the New York Mercantile Exchange. The March contract gained 48¢ to $64.77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 7¢ to $63.23/bbl. Heating oil for January delivery climbed by 1.17¢ to $1.73/gal on NYMEX. Unleaded gasoline for the same month, however, lost 2.46¢ to $1.68/gal.

The January natural gas contract fell 31.4¢ to $6.77/MMbtu, a new 2-year low for a front-month gas position on NYMEX, with forecasts for warmer weather over much of the US. On the US spot market, gas at Henry Hub, La., dipped by 4¢ to $6.44/MMbtu. EIA reported Dec. 21 the withdrawal of 71 bcf of natural gas from US underground storage during the week ended Dec. 15. That was within the consensus of Wall Street analysts but down from withdrawals of 168 bcf in both the previous week and the same period a year ago. US gas storage now stands at 3.2 tcf, up by 342 bcf from year-ago levels and 274 bcf above the 5-year average.

In London, the February IPE contract for North Sea Brent crude gained 42¢ to $63.23/bbl. The January gas oil contract increased by $12 to $548.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes rose by 76¢ to $58.20/bbl on Dec. 20.

Contact Sam Fletcher at samf@ogjonline.com.

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