Market watch: High US inventories push down international oil prices

June 7, 2001
Increased US inventories of oil and petroleum products caused crude futures prices to fall on international markets Wednesday, wiping out previous gains this week. The July contract for benchmark US light, sweet crudes fell by 52¢ to $27.72/bbl on the New York Mercantile Exchange.


By the OGJ Online Staff


HOUSTON, June 7 -- Increased US inventories of oil and petroleum products caused crude futures prices to fall on international markets Wednesday, wiping out previous gains this week.

The American Petroleum Institute reported late Tuesday that US oil stocks increased by 3.4 million bbl to 325.4 million bbl last week, while US gasoline stocks were up by 3.2 million bbl to 209.3 million bbl. US inventories of distillate fuel also increased by 4.1 million bbl to 107.2 million bbl.

That report apparently supports the conclusion among members of the Organization of Petroleum Exporting Countries that sufficient inventories and supplies of oil exist to preclude any production increase at this time. OPEC ministers declined to take any action at their Tuesday meeting in Vienna, but said they would continue monitoring markets until their next special meeting July 3.

The July contract for benchmark US light, sweet crudes fell by 52¢ to $27.72/bbl Wednesday on the New York Mercantile Exchange. The August contract also was down 49¢ to $28.09/bbl.

Unleaded gasoline for July delivery lost 2.5¢ to 88.04¢/gal, while home heating oil for the same month slipped 0.31¢ to 76.64¢/gal.

The July natural gas contract declined by 9.1¢ to $3.80/Mcf on the NYMEX.

The American Gas Association reported that US underground natural gas storage injections totaled 117 bcf last week, up from 99 bcf the previous week and 78 bcf during the same period a year ago.

US natural gas storage now totals nearly 1.4 tcf, up 46 bcf from year-ago levels, said Robert S. Morris, energy analyst at Salomon Smith Barney Inc.

The pace of injections compared to last year continued to narrow last week, he said. It was during this period last year that some major consumers began switching to alternative fuels as composite natural gas prices surged from less than $3.50/Mcf in mid-May to more than $4/Mcf in early June, Morris said.

Now that natural gas prices is cheaper, he said, many of those consumers are switching back

The 2001 hurricane season got off to an early start with the sudden development Wednesday of Tropical Storm Allison in the northern Gulf of Mexico. However, Morris said, the storm reached its peak strength below hurricane level and too close to shore to have any major impact on offshore drilling or production in the gulf.

The stalled storm dumped several inches of rain along the upper Texas Gulf Coast through early Thursday, with predictions of more rain yet to come. Resultant flooding could hamper some onshore drilling and refining operations in the Houston area.

In London, the build-up of US inventories caused the July contract for North Sea Brent crude to tumble 72¢ to $28.96/bbl Wednesday on the International Petroleum Exchange. The July natural gas contract lost 3.3¢ to the equivalent of $2.97/Mcf, as the British pound hit a 15-year low against the dollar.

Technical selling also accelerated the decline of Brent crude prices Wednesday. Now that Brent oil has broken through the $29/bbl level on the IPE, brokers said, follow-through selling will probably take prices down by another 50¢ before stabilizing in that market.

The average price for OPEC's basket of seven crudes dropped 33¢ to $26.70/bbl Wednesday.