Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 5 -- Energy futures prices generally fell Wednesday in reaction to reports issued by both the American Petroleum Institute and the US Department of Energy that US oil inventories fell by more than 3 million bbl during the week ended Nov. 29.
The improving situation in Venezuela's general strike also forced traders into some profit taking, pushing down prices even further, analysts said.
"Nonetheless, over the near term we would expect any bearish reaction to the (API) data to be tempered due to peaking seasonal demand and low stock levels globally, as well as the looming (Dec. 8) deadline for full Iraqi disclosure of its weapons programs and other geopolitical tensions," said Matthew Warburton, market analyst with UBS Warburg LLC.
He noted that the 3.7 million bbl increase in US crude inventories reported by API was driven primarily by builds in Petroleum Administration for Defense Districts 1 and 3, along the East Coast and Gulf Coast, respectively.
"While API reported that average refinery utilization rose to 92.9%, the highest level in 12 weeks, this was more than offset by additional crude imports reflecting increased. . .production (by the 10 active members of the Organization of Petroleum Exporting Countries), which peaked at approximately 24.5 million b/d during October," Warburton reported Wednesday.
"With OPEC members now seeking to curtail output to avert a large inventory build (in the first half of 2003) and with refiners striving to minimize their stocks by yearend for tax purposes, we would not expect such import levels to be sustained," he said.
Warburton also pointed out that implied demand for distillate "fell sharply" last week. "However, it remains well above year-ago levels owing to colder weather and higher natural gas prices," he said. "With distillate inventories currently 11% below year-ago levels, should demand fundamentals remain favorable over the coming winter, we would expect rising distillate prices and widening heating oil crack spreads to only offer further support for domestic refining margins."
The January contract for benchmark US light, sweet crudes dropped 59¢ to $26.71/bbl Wednesday on the New York Mercantile Exchange, while the February contract was down 58¢ to $26.59/bbl. Heating oil for January delivery plunged 2.96¢ to 74.54¢/gal. Unleaded gasoline for the same month fell 2.39¢ to 72.93¢/gal.
However, the January natural gas contract was up 7.2¢ to $4.30/Mcf on NYMEX. "The buying came despite weather forecasts calling for normal to mild temperatures over the next 2 weeks. However, short-term cold is seen in the Midcontinent, Northeast, and South, helping to support cash prices," analysts at Enerfax Daily reported Thursday.
"As of now, the market is affected by storage operators who have preferred to go to the cash market to satisfy incremental cold demand, but that strategy could change by late December. Once major pulling from storage begins in earnest, and if the market should also experience a warming trend in the back portion of December, prices could drop quickly," they said.
Meanwhile, the US Energy Information Administration reported Thursday that 91 bcf of natural gas was pulled from underground storage last week, up from 49 bcf the previous week and compared with injection of 4 bcf during the same period a year ago. US gas storage now exceeds 2.95 tcf, which is 298 bcf less gas than was in storage during the same period a year ago. However, current storage is up 25 bcf above the 5-year average, said Robert S. Morris, analyst for Salomon Smith Barney Inc., New York.
In London, futures prices for North Sea Brent oil fell on the International Petroleum Exchange, largely on technically related selling among brokers who figured the market was overbought. The January Brent contract dropped 67¢ to $25.18/bbl. However, the January natural gas contract jumped by 30.6¢ to the equivalent of $4.37/Mcf, surpassing the NYMEX price level.
The average price for OPEC's basket of seven benchmark crudes dropped 50¢ to $25.53/bbl Wednesday.
Contact Sam Fletcher at [email protected]
