MARKET WATCH
Low distillate draw undermines energy prices

Sam Fletcher
Senior Writer

HOUSTON, Feb. 15 -- Energy futures prices continued to seesaw, falling again Feb. 14 when the US Energy Information Administration reported a lower-than-expected drawdown of distillate stocks despite recent cold weather in much of the US.

Distillate inventories fell 3 million bbl to 133.3 million bbl during the week ended Feb. 9, vs. a Wall Street consensus of a 4 million bbl draw. However, US crude inventories dropped 600,000 bbl to 323.9 million bbl, against consensus expectation for a 1 million bbl build. Gasoline stocks were down by 2.1 million bbl against expectations for a 2.1 million bbl build.

The data—especially the unexpected drop in gasoline inventories—were "positive for refiners," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va. "Total refined product inventories showed their largest week-over-week decline in over 3 months, as production and import gains were insufficient to meet increased consumption. We expect this trend of declining inventories to continue over the next several weeks, as refinery maintenance season continues, putting upward pressure on refining margins and refiner stock prices," he said.

Meanwhile, the front-month contract for benchmark US crude has traded at $57-60/bbl for 10 consecutive sessions on the New York market "and continues to almost trade the whole range in a 1-day frame, each day being a reversal of the previous day," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "Heating oil is dragging down the energy complex with the combination of the winter phase-out and weather patterns that are calling for temperatures to be normal to above-normal in the last week of the month. On the other hand, gasoline is resisting the correction and making for a stronger crack and support of the 3-2-1 refinery crack," he said.

"The dollar weakness should also provide some support. Gold is at multimonth high and the equities continue to make new record highs," Jakob said.

Energy prices
The March contract for benchmark US light, sweet crudes lost $1.06 to $58/bbl Feb. 14, giving back most of its gain from the previous trading session on the New York Mercantile Exchange. The April contract lost $1.28 to $58.57/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.06 to $58/bbl. Heating oil for March delivery dropped 5.49¢ to $1.64/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) continued to climb, however, up 0.71¢ to $1.62/gal.

The March natural gas contract declined by 12.6¢ to $7.24/MMbtu on NYMEX. On the US spot market, however, increased demand generated by recent cold weather pushed up the price of gas at Henry Hub, La., by 79¢ to $8.86/MMbtu. EIA reported Feb. 15 the withdrawal of 259 bcf of gas from US underground storage in the week ended Feb. 9. That was above the Wall Street consensus and compared with withdrawals of 224 bcf the prior week and 102 bcf during the same period last year. US gas storage now stands at nearly 2.1 tcf, down 193 bcf below year-ago levels but up 268 bcf above the 5-year average.

In London, the April IPE contract for North Sea Brent crude lost $1.35 to $57.43/bbl. Gas oil for March dropped $11.25 to $505.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes climbed by 44¢ to $53.70/bbl on Feb. 14.

Contact Sam Fletcher at samf@ogjonline.com.

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