OGJ Senior Writer
HOUSTON, Sept. 29 -- The front-month crude contract declined Sept. 28 in the New York market as traders ignored the weakening dollar and a bullish industry inventory report and focused instead on the faltering economy.
In the Houston office of Raymond James & Associates Inc., analysts pointed to the recent sluggishness in consumer spending and pessimistic outlook on the job market among other factors that have reduced consumer confidence to “lows not seen since February.”
The Energy Information Administration said Sept. 29 commercial US crude inventories dipped by 500,000 bbl to 357.9 million bbl in the week ended Sept. 24, less than the Wall Street consensus for a 700,000 bbl draw. Crude stocks are still above average for this time of year. Gasoline inventories fell 3.5 million bbl to 222.6 million bbl, counter to analysts’ expectations for a 400,000 bbl increase. Distillate fuel stocks dropped 1.3 million to 173.6 million bbl, while the consensus was for a 300,000 bbl increase.
The American Petroleum Institute earlier reported crude stocks down a bullish 2.4 million bbl to 361.7 million bbl in the same week. Gasoline inventories increased by 3 million bbl to 207.8 million bbl, API calculated, while distillate fuel fell 2.8 million bbl to 167.2 million bbl. Crude was slightly higher in early trading Sept. 29 on the strength of API’s report.
EIA said imports of crude into the US dropped 317,000 b/d to 9 million b/d in that week In the 4 weeks through Sept. 24, US imports of crude averaged 9.1 million b/d, down 271,000 b/d from the comparable 4-week period in 2009.
The input of crude into US refineries declined by 381,000 b/d to 14.7 million b/d in the latest week, with units operating at 85.8% of capacity. Gasoline production increased to 9.2 million b/d while distillate fuel production decreased slightly to 4.3 million b/d.
The weekly EIA data showed “light products (gasoline plus distillate plus jet fuel) stocks have fallen due to increased gasoline and distillate demand (week over week) and decreased finished product imports,” said Jacques Rousseau, managing director of equity research, RBC Capital Markets, Reston, Va. “Gasoline consumption for the week is higher than the comparable week from last year (up 2.8% year-over-year).”
Rousseau said, “After a strong second quarter, refining margins declined sharply in August due to rising supply and lackluster demand. Fall maintenance season (which should run through October) has reduced supply and lowered distillate inventory levels slightly over the past month. However, we remain concerned that high refined product inventory levels and rising production in November-December will place downward pressure on refining margins and refining stock prices.”
He estimated the average US refining margin decreased to $10/bbl from $11/bbl over the past week. That compares with average margins of $9/bbl in 2009 and $12/bbl in 2008. Rousseau also estimated the price differential between West Texas Intermediate and Maya crudes averaged $7/bbl last week, below the 2010 average of $9/bbl so far this year. That compares with a price spreads of $5/bbl in 2009 and $16/bbl in 2008.
At Standard New York Securities Inc., part of the Standard Bank Group, analyst Leon Westgate noted “just how poorly matched demand has been relative to supply, with the overhang of stocks likely to dampen any price rallies for some time to come.” In addition, he said, “The imbalance between gasoline and distillate may give the refineries a bit of a headache, potentially seeing much more activity in product cracks and gas-heat spread instead.”
The November contract for benchmark US sweet, light crudes fell 34¢ to $76.18/bbl Sept. 28 on the New York Mercantile Exchange. The December contract declined 9¢ to $77.41/bbl, but prices increased for crude contracts in subsequent months.
On the US spot market, WTI at Cushing, Okla., was down 34¢ to $76.18/bbl, in step with the front-month futures contract price. Heating oil for October delivery inched up 0.17¢ but the closing price was essentially unchanged at a rounded $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped 0.09¢, but its closing price also was essentially unchanged, at $1.95/gal.
In its last trading session, the October natural gas contract advanced 3.7¢ to $3.84/MMbtu on NYMEX. This was “the second consecutive contract to close below $4/Mcf this year,” said Raymond James analysts. On the US spot market, gas at Henry Hub, La., was up 2¢ to $3.81/MMbtu.
In London, the November IPE contract for North Sea Brent crude gained 14¢ to $78.71/bbl, widening its premium over WTI. Gas oil for October regained $10.75 to $682/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 19¢ to $74.87/bbl.
Contact Sam Fletcher at email@example.com.
MARKET WATCH: Oil price declines amid signs of faltering economy