MARKET WATCH: Oil futures prices relinquish December gains

Crude oil futures prices closed at about $3/bbl lower Jan. 2 on both New York and London markets, and analysts attributed the sharp price drops to robust US production coupled with the potential resumption of Libyan oil production and exports.

Ole Hansen, head of commodity strategy for Saxo Bank, said both Brent and West Texas Intermediate crude oil benchmarks ran into heavy selling this week. Saxo Bank is based in Copenhagen.

“Key to the move lower was the lack of speculative buyers who had been supporting the price in order to achieve a good end-of-year result, together with a rising dollar and not least the news from Libya,” that labor protests were ending at El Sharara oil field, allowing resumption of production.

Repsol SA operates El Sharara field. Hansen noted labor protests could resume if the Libyan government fails to meet several key demands from workers.

“The oil-rich eastern part of the country is still not showing any signs of progress towards resumption of production, and thus we continue to see Libya’s production falling far short of previous levels,” Hansen said. Before the outbreak of civil war, Libya produced 1.65 million b/d of crude oil, according to the US Energy Information Administration (OGJ Online, Oct. 27, 2011).

Separately, the US government reported a decrease in crude oil stocks. EIA released its weekly petroleum and products report Jan. 3, later than normal because of the midweek New Year’s holiday.

Commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased by 7 million bbl for the week ended Dec. 27 compared with the previous week, EIA reported.

At 360.6 million bbl, the crude oil inventory remained above the upper limit of the average range for this time of year, EIA said.

In its separate natural gas storage report also released Jan. 3, EIA estimated working gas at 2.974 tcf for the week ended Dec. 27, marking a net decline of 97 bcf from the previous week. Stocks were 562 bcf fewer than for the same period a year ago and 289 bcf below the 5-year average of 3.263 tcf.

Products inventory

Total US motor gasoline inventories increased by 800,000 bbl last week, EIA said, noting that level was in the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased.

Distillate fuel inventories increased by 5 million bbl last week, which was below the lower limit of the average range for this time of year. Propane-propylene inventories fell 1.5 million bbl for the week, well below the lower limit of the average range. Total commercial petroleum inventories decreased by 6.6 million bbl for the week ended Dec. 27.

US refinery inputs averaged over 16.2 million b/d for last week, which was 14,000 b/d higher than the previous week’s average. Refineries operated at 92.4% of capacity last week. Gasoline production decreased, averaging 9.1 million b/d. Distillate fuel production increased last week, averaging over 5.2 million b/d.

Crude oil imports averaged 7.5 million b/d, down by 40,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged 7.4 million b/d, which EIA said was 7.5% below the same 4-week period last year.

Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 247,000 b/d while distillate fuel imports averaged 140,000 b/d last week.

Energy prices

The New York Mercantile Exchange February crude contract dropped $2.98 on Jan. 2 to close at $95.44/bbl, marking the lowest front-month price since Dec. 2. The March contract fell $2.93 to settle at $95.62/bbl.

Heating oil for February delivery was down 7.85¢ to a rounded $2.99/gal. Reformulated gasoline stock for oxygenate blending for February delivery also dropped, down 9.1¢, to a rounded $2.70/gal.

The February natural gas contract on NYMEX rose 9.1¢ to settle at $4.32/MMbtu. On the US spot market, the gas price at Henry Hub, La., on Jan. 2 gained less than a penny to remain at a rounded $4.32/MMbtu.

In London, the February ICE contract for Brent crude oil fell $3.02 to close at $107.78/bbl. The March ICE contract for Brent was down $2.93 to settle at $107.60/bbl. The ICE gas oil contract for January was down $20.75 to settle at $923.50/tonne.

The Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes closed at $106.92/bbl on Jan. 2, down $1.02 from the previous trading session on Dec. 31.

Contact Paula Dittrick at paulad@ogjonline.com.

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