MARKET WATCH: Oil price increases as East Coast refineries come online

With resumption of floor trading in New York markets, energy prices rose moderately amid worries about US Northeast supply and demand following the combination Hurricane Sandy and winter storms.

“West Texas Intermediate continued to recover yesterday as East Coast refineries resumed operations after shutdowns owing to Hurricane Sandy. Some 980,000 b/d of the region’s total 1.26 million b/d capacity has been restored,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Rapid resumption of refining operations helped alleviate concerns of a possible oversupply of crude. However, Ground said, “Upward momentum does appear to be slowing.”

In Houston, analysts with Raymond James & Associates Inc. reported, “This morning the Chinese Purchasing Manager's Index report showed modest expansion in factory output but remained sluggish, giving the next Politburo plenty to worry about.” Still, they expect China to overtake the US as the top global economy.

In other news, Raymond James analysts noted, “After trading at a premium to WTI at Cushing, Okla., throughout much of the past 2 months, Bakken crude prices have weakened sharply since late last week, trading as much as $10/bbl below WTI or a whopping $30-plus below Brent.” They listed “three converging issues” negatively affecting Bakken supply-demand:

• Crude rail shipments to the East Coast were disrupted by Hurricane Sandy, hampering the outlet for Bakken crude.

• BP PLC's Whiting, Ill., refinery is beginning its planned shutdown, reducing crude demand in the Midwest.

• Canadian upgraders are coming back online, delivering more syncrude into the Midwest market in direct competition with Bakken barrels.

“To be clear, we don't believe that this weakness in Bakken pricing will last much more than a week or two; however, it illustrates the potential volatility in spot regional crude markets given the relentless supply growth and pressure on infrastructure,” they said.

Meanwhile, Payroll provider Automatic Data Processing Inc. (ADP) reported US employers hired workers to fill 158,000 new jobs in October, down from 201,000 in September. ADP reported job growth in construction, transportation and utilities, financial activities, and services. Manufacturing was the only sector that lost jobs, it said. That survey does not include government employment.

US inventories

The Energy Information Administration said Nov. 1 commercial US crude inventories fell 2 million bbl to 373.1 million bbl in the week ended Oct. 26, countering Wall Street’s consensus for a gain of 1.8 million bbl. Crude stocks remain above average for this time of year, however. Gasoline inventories increased 900,000 bbl to 199.5 million bbl in the same period, meeting analysts’ expectations. Both finished gasoline and blending components increased. Distillate fuel stocks dipped by 100,000 bbl to 117.9 million bbl last week, short of the market’s outlook for a loss of 1.4 million bbl.

The American Petroleum Institute earlier reported US crude inventories dropped 351,000 bbl to 371.7 million bbl last week with gasoline stocks down 173,000 bbl to 199.2 million bbl and distillate fuels falling 2.6 million bbl to 118.2 million bbl.

Imports of crude into the US fell 901,000 b/d to 7.9 million b/d last week, EIA officials said. In the 4 weeks through Oct. 26, US crude imports averaged 8.3 million b/d, down 506,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 616,000 b/d with distillate fuel imports at 32,000 b/d.

The input of crude into US refineries last week increased 48,000 b/d to 14.9 million b/d with units operating at 87.7% of capacity. Gasoline production increased to 9.2 million b/d; distillate fuel production rose to 4.5 million b/d.

EIA also reported the injection of 65 bcf of natural gas into US underground storage last week, short of analysts’ consensus for 67 bcf input. That increased working gas in storage to 3.9 tcf; that’s 136 bcf more than last year at this time and 259 bcf above the 5-year average.

Energy prices

The December contract for benchmark US sweet, light crudes increased 56¢ to $86.24/bbl Oct. 31 on the New York Mercantile Exchange. The January contract advanced 54¢ to $86.73/bbl. On the US spot market, WTI at Cushing was up 56¢ to $86.24/bbl.

The expiring November contract for heating oil declined 1.84¢ to $3.07/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 3.3¢ to $2.76/gal.

The December natural gas contract inched up 0.1¢ but closed essentially unchanged at a rounded $3.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 7¢ to $3.49/MMbtu.

In London, the December IPE contract for North Sea Brent dropped 38¢ to $108.70/bbl. Gas oil for November lost $5.50 to $958/tonne.

The Vienna office of the Organization of Petroleum Exporting Countries was closed Nov. 1, so no update was available for OPEC’s basket of 12 benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com.

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