MARKET WATCH: Falling inventory raises crude prices

Sam Fletcher
Senior Writer

HOUSTON, Dec. 20 -- Crude prices rose Dec. 19 ending a four-session losing streak on the New York futures market as the Energy Information Administration reported US crude inventories dropped to the lowest level since February 2005.

EIA reported commercial US crude inventories fell 7.6 million bbl to 296.9 million bbl during the week ended Dec. 14 vs. a consensus among Wall Street analysts of a smaller drop of 1.4 million bbl. US crude stockpiles have dropped a total 20 million bbl since Nov. 9. In the latest week, gasoline stocks grew by 3 million bbl to 205.2 million bbl vs. a consensus increase of 800,000 bbl. Distillate fuel inventories dropped 2.1 million bbl to 129.4 million bbl during the same period, while the market was expecting a decrease of 400,000 bbl (OGJ Online, Dec. 19, 2007).

Furthermore, heavy fog in the Houston Ship Channel this week delayed offloading of tankers and "may foretell another crude draw next week," said analysts in the Houston office of Raymond James & Associates Inc.

Paul Horsnell at Barclays Capital Inc., London, said, "For the first time since November 2004, US crude oil inventories are below their 5-year average. In absolute terms, at 296.9 million bbl, US commercial crude oil inventories are below 300 million bbl for the first time since February 2005.

"Since their peak in the last week of June, US crude inventories have fallen by no less than 57.1 million bbl," he added. "Given that over this period the system has also absorbed a volume of some 20 million bbl or so of crude previously held in offshore storage in the US Gulf, if anything, the headline figure of a 57.1 million bbl draw understates the speed of crude inventory attrition.

"The fall is more significant when you allow for the large minimum operating requirement in the US crude system (mainly crude oil pipeline fill)." Horsnell continued. "Our estimate would be that US crude inventories above minimum operating requirements have fallen from about 100 million bbl 6 months ago to about 40 million bbl now. In other words, usable discretionary inventories have now fallen by some 60% since the start of the third quarter."

The Societe Generale Group in Paris acknowledged, "Crude prices have been supported by the ongoing stock draws seen in the [member countries of the] Organization for Economic Cooperation and Development in November and the first half of December. According to preliminary data, combined crude and product inventories in the US, Europe, Japan, Korea, and Singapore fell by over 900,000 b/d in November. In addition, the Organization of Petroleum Exporting Countries has clearly demonstrated its intention to maintain a tight grip on crude supplies amidst an uncertain outlook for economic and oil demand growth."

SGG analysts said, "US product demand has not grown since May. Despite the stock draws, the physical market remains well-supplied, and anecdotal market reports indicate that refiners are relaxed about procuring cargoes for January and February. Their mood is no doubt influenced by refining margins, which have deteriorated significantly in the last couple of weeks, in all key regions. Just as importantly, mediocre margins are a current indicator of lukewarm product demand (even when surging freight rates are taken into account)."

They added, "Our supply and demand forecasts indicate that the first quarter of 2008 will be essentially balanced. As a result, the price support from stock draws seen in recent weeks will dissipate, and prices will fall, with West Texas Intermediate forecast to average $85/bbl in the first quarter.

Turkey and Iraq
Recent attacks by Turkish aircraft and troops against Kurdistan Workers Party facilities in northern Iraq fanned market fears of possible damage to an oil pipeline from Iraq to a Turkish export facility on the Mediterranean (OGJ Online, Dec. 19, 2007).

On Dec. 20, SGG analysts predicted, "Limited Turkish ground and air attacks against Kurdish separatists in northern Iraq will be intermittent but recurring. The Washington Post reported this week that the US military has set up a center in the Turkish capital of Ankara for sharing actionable intelligence with the Turkish military and is providing overhead imagery from reconnaissance aircraft and drones.

"The US appears to have agreed to provide this assistance in exchange for Turkish restraint in not mounting a major ground offensive this past autumn," the analysts surmised. "The US does not want to destabilize what has been a relatively calm area within Iraq. In addition, the US military in Iraq receives 70% of its air cargo and a third of its fuel supplies through Turkey, also according to the Washington Post."

They added, "Our view is that by being involved and by providing tacit approval for Turkish operations, the US feels that is maintains some degree of control over the situation. The Turkish military will probably continue to conduct limited air and ground attacks as and when they receive actionable intelligence from the US. We believe that this will continue intermittently at least through 2008, and that the oil markets will soon begin to shrug off these reports."

Energy prices
The new front-month February contract for benchmark US sweet, light crudes jumped by $1.16 to $91.24/bbl Dec. 19 on the New York Mercantile Exchange. The March contract gained $1.09 to $91.18/bbl. On the US spot market, WTI at Cushing, Okla., was up 55¢ to $91.05/bbl. Heating oil for January delivery escalated by 4.25¢ to $2.60/gal. The January contract for reformulated blend stock for oxygenate blending advanced 2.76¢ to $2.33/gal.

The January natural gas contract gained 3.8¢ to $7.18/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 1.5¢ to $7.17/MMbtu. EIA reported Dec. 20 the withdrawal of 121 bcf of natural gas from US underground storage in the week ended Dec. 14. That was below Wall Street consensus and compared with withdrawals of 146 bcf the prior week and 71 bcf during the same period a year ago. US gas storage now exceeds 3.17 tcf, which is 4 bcf below last year's level in that period but up 266 bcf from the 5-year average.

In London, the February IPE contract for North Sea Brent crude gained $1.36 to $91.48/bbl, again trading at a premium to WTI. Gas oil for January increased $2.25 to $814/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes inched up 13¢ to $87.38/bbl on Dec. 19.

Contact Sam Fletcher at samf@ogjonline.com

Related Articles

Russia’s Turkey pipeline deal possibly may keep door to Europe ajar

12/18/2014 Russia’s memorandum of understanding to build a natural gas pipeline to Turkey after canceling its South Stream project could help keep the door op...

EPP kills plans for Bakken-to-Cushing crude oil pipeline

12/15/2014 Enterprise Products Partners LP (EPP) has elected not to proceed with development of its proposed crude oil pipeline that would have extended 1,200...

Kinder Morgan to deliver natural gas to Corpus Christi Liquefaction

12/11/2014 Kinder Morgan Inc. (KMI) companies Kinder Morgan Texas Pipeline, Kinder Morgan Tejas Pipeline, and Tennessee Gas Pipeline Co. (TGP) have entered in...

BG agrees to sale of Australian gas pipeline to APA Group

12/10/2014

BG Group PLC agreed to sell its wholly owned subsidiary Queensland Curtis LNG Pipeline Pty. Ltd. (QCLNG) to APA Group for about $5 billion.

More West Texas gathering, processing to come onstream

12/09/2014 EagleClaw Midstream Services LLC, Midland, Tex., has bought natural gas gathering and processing in Reeves County, Tex. The company declined to ide...

Methane controls just part of complete climate strategy, speakers say

12/08/2014 Reducing oil and gas operations’ methane emissions is an essential, but far from the only, part of a comprehensive climate strategy, speakers at a ...

Rail tank car rule could cost economy billions, report says

12/08/2014 The US Pipeline and Hazardous Materials Safety Administration's (PHMSA) proposed rail tank car rule could cost the US economy as much as $60 billio...

Renewed dilbit investigation faces similar hurdles of past debate

12/05/2014 A National Research Council committee opened a second investigation of potential environmental consequences from diluted bitumen (dilbit) spills fr...

Southwestern continues Marcellus expansion

12/03/2014 Southwestern Energy Co., Houston, has signed an agreement to purchase oil and gas assets, including 46,700 net acres, in northeast Pennsylvania fro...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected