MARKET WATCH: Energy prices rally; OPEC to maintain current output

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 14 -- Energy and gold prices escalated Oct. 13 as the weakening dollar and likelihood of lower interest rates and more monetary easing encouraged investors to put their money where it would draw higher yields.

Meanwhile as expected, ministers of the Organization of Petroleum Exporting Countries decided at their Oct. 14 meeting in Vienna to leave current production levels unchanged. They cited “important market drivers” indicating the crude market remains well supplied with refinery utilization still low and product inventories still rising.

Crude contracts were “greeted with only a slightly less-welcoming scenario” Oct. 13 as the 33 miners safely freed after being trapped more than 2 months in a Chilean mine, said analysts in the Houston office of Raymond James & Associates Inc. “China reported record high crude imports for the month of September, the International Energy Agency (IEA) increased its global oil demand forecasts, and the dollar weakened against the euro. These factors combined to drive crude 1.6% higher on the day. Natural gas joined the party, increasing 1.9% ahead of this week's Energy Information Administration’s (EIA) storage report,” they said. Increasing commodity prices also drove energy stocks to outperform the broader market.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Chinese crude imports grew by 11% in September while the IEA raised its outlook for the fuel consumption by 300,000 b/d for this year and the next year on strength of demand from the US, Japan, and Germany recently. The IEA now projects that the worldwide demand would be 86.9 million b/d in 2010 and 88.2 million b/d in 2011.”

During its meeting, OPEC approved a second long-term strategy (LTS), having adopted the first in September 2005. “The new LTS is timely, given the major upheavals the world and the oil market have faced in recent years. The onset of the global financial crisis in 2008 and the ensuing economic recession, which was the deepest and most widespread in more than six decades, have clearly had, and continue to have significant structural impacts upon the oil market,” OPEC said. A summary of the new LTS is to be released at OPEC’s next extraordinary meeting Dec. 11 in Quito, Ecuador.

US inventories
EIA reported Oct. 14 inventories of benchmark US sweet, light crudes dipped by 400,000 bbl to 360.5 million bbl in the week ended Oct. 8, well below Wall Street’s consensus for a 1.5 million bbl gain. Gasoline stocks dropped 1.8 million bbl to 218.2 million bbl in the same period, exceeding expectations of a 1.5 million bbl decline. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased 300,000 bbl to 172.2 million bbl, not at all near the 1.2 million bbl decline that was expected. The EIA report of crude and product inventories was delayed this week as Columbus Day on Oct. 11 was US holiday.

Imports of crude into the US fell by 798,000 b/d to 8.1 million b/d last week. In the 4 weeks through Oct. 8, the US imported 8.8 million b/d of crude, 444,000 b/d less than in the comparable 4-week period in 2009. Total gasoline imports (including both finished gasoline and gasoline blending components) averaged 708,000 b/d last week. Distillate fuel imports averaged 188,000 b/d.

The input of crude into US refineries last week was down 231,000 b/d to 13.9 million b/d, with units operating at 81.9% of capacity. Gasoline production decreased last week to 8.7 million b/d. Distillate fuel production increased to 4.2 million b/d.

EIA also reported the injection of 91 bcf of natural gas into US underground storage in the week ended Oct. 8, slightly above Wall Street’s consensus for 90 bcf. That brought working gas in storage to 3.59 tcf, down 118 bcf from the same period a year ago but 247 bcf above the 5-year average.

Energy prices
The November contract for benchmark US light, sweet crudes gained $1.34 to $83.01/bbl Oct. 13 on the New York Mercantile Exchange. The December contract advanced $1.29 to $83.74/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.30 to $83.01/bbl. Heating oil for November delivery increased 3.82¢ to $2.30/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 4.22¢ to $2.17/gal.

The November natural gas contract continued climbing, up 6.7¢ to $3.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 18¢ to $3.63/MMbtu.

In London, the November IPE contract for North Sea Brent crude was up $1.14 to $84.64/bbl. The new front-month November contract for gas oil jumped $12.25 to $725.50/tonne.

The average price for OPEC’s basket of 12 reference crudes increased $1.26 to $80.90/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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