Sam Fletcher
OGJ Senior Writer
HOUSTON, Jan. 16 -- Oil futures prices continued to climb with reports Wednesday of a surprisingly sharp drop in US oil inventories for the previous week, while forecasts of colder weather boosted natural gas futures prices to "highs not seen since mid-December," analysts said.
The American Petroleum Institute reported Wednesday that US oil stocks fell by 3.3 million bbl to 272.2 million bbl during the week ended Jan. 10. Officials at the US Department of Energy reported an even larger draw, down 6.4 million bbl to 272.3 million bbl of crude.
"US crude oil inventories have moved down to the second lowest level since 1976," said Paul Horsnell at J.P. Morgan Securities Inc. in London. "The margin of spare inventory above minimum operating requirements is now about 4 hr worth of crude runs through refineries."
With world crude inventories already tight and military conflict threatening in Iraq, the oil market "remains just a shade away" from higher price spikes, he said. "Only a combination of OPEC and luck has stopped prices reaching $35(/bbl) so far," Horsnell said, "and we are concerned that the luck will run out soon."
He warned, "The US system has almost run out of spare oil, suggesting that refinery run cuts due to lack of crude are going to become a more generalized phenomenon." It's unlikely, he said, that "some crumbs might be thrown to refiners, in either a targeted or generalized manner" through the release of crude from the US Strategic Petroleum Reserve. US officials apparently are reluctant to draw down those emergency reserves prior to the start of military action against Saddam Hussein.
DOE officials reported Wednesday that US gasoline stocks increased by 5.8 million bbl last week, while API favored a more conservative gain of 4.39 million bbl. Distillate fuel inventories increased by 2.6 million bbl, according to DOE figures. API, however, reported a decline of 104,000 bbl in distillate stocks.
Energy prices
The February contract for benchmark US light, sweet crudes gained 84¢ to $33.21/bbl Wednesday on the New York Mercantile Exchange. The March position increased by 67¢ to $32.45/bbl. Heating oil for February delivery increased by 1.7¢ to 90.86¢/gal. Unleaded gasoline for the same month was up 1.27¢ to 90.43¢/gal.
The February natural gas contract jumped by 32.3¢ to $5.44/Mcf on NYMEX. "With the hypersensitivity to cold forecasts, the market wasted no time reacting to the new forecast" of colder weather for much of the US, said analysts Thursday at Enerfax Daily. "Also helping to boost the price was a lot of options-related buying, with more than 5,000 open interest call options piled high at $5.50(/Mcf), the high mark of the session."
The run-up in gas futures prices Wednesday more than offset Tuesday's loss of 14.4¢/Mcf on the same in a round of profit taking when "traders seemed ready to take out the winter premium," said Enerfax analysts. "But now $6(/Mcf) doesn't seem out of the question."
In London, the February contract for North Sea Brent oil increased by 61¢ to $31.22/bbl on the International Petroleum Exchange, amid concerns about low US oil inventories and growing expectations of a military conflict in the Middle East. However, brokers said that market seemed "overbought and overheated" from the recent run-up in oil prices. It may soon correct lower, they said.
Meanwhile, the February natural gas contract gained 7¢ to the equivalent of $3.51/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes advanced by 45¢ to $30.66/bbl Wednesday.
Contact Sam Fletcher at [email protected]
