Supply outlook pressures prices

Sam Fletcher
Senior Writer

Energy prices fluctuated Apr. 9-13 with fast-paced changes in US inventories and political threats to Middle East crude supplies.

The May contract for benchmark US light, sweet crudes fell $2.77 to $61.51/bbl Apr. 9 on the New York Mercantile Exchange following Iran's release of 15 UK sailors and marines. It was the biggest price reduction for a front-month crude contract in 3 months. Yet an Apr. 10 rally in gasoline and heating oil boosted May crude to $61.89/bbl for its first gain in five sessions on NYMEX. The price inched up to $62.01/bbl Apr. 11 as US gasoline stocks fell for the 9th consecutive week, plunging 5.5 million bbl to a below-average level of 333.4 million bbl during the week ended Apr. 6, the lowest level since 2001. The crude price escalated to $63.85/bbl Apr. 12 on evidence that US gasoline inventories had gone from adequate to tight in less than a month. It slipped to $63.63/bbl Apr. 13, resulting in roughly a 1% loss in volatile trading that week.

"The US gasoline crack is taking back its driving position. Demand is holding well. Geopolitics moved to the back seat," said analysts at the Société Générale Group in an Apr. 16 report. Members of the Organization of Petroleum Exporting Countries won't increase supply until crude prices climb above $70/bbl, said Société Générale.

Analysts in the Houston office of Raymond James & Associates Inc. said, "It is not often that a single refinery outage has a material impact on the US oil market, but that is precisely what has happened in the wake of the fire at the Sunray, Tex., refinery. The temporary glut of crude oil at Cushing, Okla., has kept the price of West Texas Intermediate stagnant year-to-date, even as global oil prices surged higher." Valero Energy Corp.'s 158,000 b/d Sunray refinery in the Texas Panhandle is expected to restart this month. Once that happens, Raymond James analysts said, "We believe that WTI prices could rise by up to 10% within the next 6 weeks."

Raymond James analysts said refinery shutdowns have led to a build-up of crude oil in inventory depressed WTI prices compared to Brent Sea crude prices on the London Stock Exchange. "Iran remains a catalyst for high oil prices, however. The country asserts it is enriching uranium on an industrial scale in defiance of global sanctions," they said.

Refinery problems in the Midwest helped inflate the local stock build, while Canadian crude exports to the same area made market prices for WTI "incredibly weak" vs. North Sea Brent crude. The primary problem, said Société Générale was "not enough crude on the Atlantic Basin and too much in Cushing." Crude supplies in Cushing surged by 12% in the week ended Mar. 30.

Gasoline inventories
With the official the start of the summer driving season approaching on May 28, Société Générale analysts were expecting the first seasonal build of gasoline stocks after an "unrealistic" draw of 5 million bbl to 205.2 million bbl during the week ended Mar. 30. Instead, the Energy Information Administration reported Apr. 11 that US gasoline stocks fell for the ninth consecutive week, plunging 5.5 million bbl to a below-average level of 333.4 million bbl during the week ended Apr. 6, the lowest level since 2001.

Commercial US crude inventories increased by 700,000 bbl to 333.4 million bbl during the same period, well below the jump some analysts had expected in the face of recent refining outages. Distillate fuel inventories inched up just 100,000 bbl to 118.1 million bbl, with a modest gain in diesel offsetting a drop in heating oil. Propane and propylene inventories rose 700,000 bbl to 25.8 million bbl in the same week.

Imports of crude into the US fell 441,000 b/d to 9.8 million b/d during that period. However, the input of crude into US refineries increased by 231,000 b/d to 15.1 million b/d, with units operating at 88.4% of capacity. Gasoline production declined to 8.5 million b/d while distillate fuel production increased to 4.2 million b/d.

The International Energy Agency in Paris said Apr. 12 that inventories of crude and petroleum products among member countries of the Organization for Economic Cooperation and Development fell by 80 million bbl in February due to seasonal refinery maintenance in North America.

IEA estimated that members of the Organization of Petroleum Exporting Countries (excluding Iraq and Angola) reduced their total production by 200,000 b/d to 26.5 million b/d in March. That was 1.2 million b/d below September 2006 levels and contributed to declining crude stocks. EIA revised its 2007 "call-on-OPEC" down by 200,000 b/d to 31.5 million b/d.

(Online Apr. 16, 2007; author's e-mail: samf@ogjonline.com)


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