Market watch: Energy futures prices mixedahead of US holiday

Feb. 13, 2003
Energy futures prices were mixed Wednesday, with oil prices still climbing on reports of reduced US crude inventoriesahead of an extended US holdiday weekend.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 13 -- Energy futures prices were mixed Wednesday, with oil prices still climbing on reports of reduced US crude inventoriesahead of an extended US holdiday weekend.

The US Department of Energy said Wednesday that US oil inventories fell by 4.5 million bbl to 269.8 million bbl during the week ended Feb. 7. It said US distillate stocks were down 3.9 million bbl to 108.2 million bbl, while gasoline inventories increased by 3 million bbl to 212.6 million bbl in the same period.

The American Petroleum Institute registered a smaller drop in US oil stocks, down 939,000 bbl to 271.6 million bbl for that week. It reported US distillate stocks fell by 4.2 million bbl to 110.2 million bbl, with gasoline stocks increasing by 3.7 million bbl to 212.5 million bbl.

Based on DOE numbers, Paul Horsnell, head of energy research for J.P. Morgan Chase & Co., London, said, "US crude oil inventories have fallen below 270 million bbl for the first time since 1976. The damage was done by a hefty 1.2 million b/d fall in imports down to just 7.2 million b/d, combined with a slight up tick in refinery runs." Operating US refining capacity increased to 85.6% during the week from 84.9% previously.

The "most grievous situation," Horsnell said, is in Petroleum Administration for Defense District 2 for the upper US Midwest, where crude inventories have fallen to 52.5 million bbl, "below what we would consider to be the minimum operating requirements."

For the US as a whole, Horsnell said, "The gap between total oil inventories and the 5-year average widened by 5.2 million bbl, bringing the fall, relative to normal seasonal patterns, over the last 4 weeks to 33 million bbl."

Moreover, he added, "Oil inventories are currently lower than normal by about 60 million bbl in Japan, 65 million bbl in Europe, and 70 million bbl in the US. That total of about 200 million bbl below normal explains most of why prices are so high."

Horsnell said, "This does not represent a particularly secure base for entering what are perhaps the most geopolitically uncertain few months there have been for some 40 years."

Futures prices
The March contract for benchmark US sweet, light crudes gained 33¢ to $35.77/bbl Wednesday on the New York Mercantile Exchange. The April contract increased by 7¢ to $34.54/bbl. Despite reports of large inventory contractions, heating oil for March delivery plunged by 2.71¢ to $1.03/gal. Unleaded gasoline for the same month lost 2.23¢ to match heating oil at $1.03/gal.

The March natural gas contract plummeted 19.2¢ to $5.79/Mcf Wednesday on NYMEX. "The sell-down briefly tested support of $5.72(/Mcf), but came back up to indicate weather fundamentals could still see the market hit new highs before the winter is done. Despite a cold snap this week that has boosted heating demand, traders are uncertain over next week's weather, and the long (US) holiday weekend forced some longs to take profits," said analysts Thursday at Enerfax Daily. NYMEX will close at 1 p.m. Friday and will remain closed Monday for the Presidents' Day holiday.

Early Thursday, the US Energy Information Administration reported 150 bcf of gas was withdrawn from US underground storage last week. That was slightly below Wall Street's expectations, down from 208 bcf the previous week and 172 bcf during the same period a year ago. US gas storage is now less than 1.4 tcf, down 789 bcf from year-ago levels and 324 bcf below the 5-year average.

"The market gets hypersensitive when storage levels drop below 1 tcf because the reservoirs' pressures become a factor, and large pulls can affect operations," said Enerfax analysts. "Recent weather forecasts indicate a warming trend for the Northeast by next week, but many traders are adopting a wait-and-see attitude to avoid being caught short."

Meanwhile, economists Donald Murry and Zhen Zhu at C.H. Guernsey & Co., Tulsa, are predicting that low levels of gas in US storage will affect market prices throughout next summer. "With normal summer weather, we estimate by July the storage levels will be approximately 760 bcf behind the 5-year average. This (would provide) a storage deficit influencing gas prices throughout the (then) remaining 4 months of the injection season," they said in a Feb. 11 report.

"Even at current high levels, we believe the physical gas prices at the Henry Hub are likely to exceed NYMEX price levels for early summer months," the economists said.

In London, the March contract for North Sea Brent oil closed at $32.45/bbl, up 8¢ for the day, after trading in a range of $32.10-32.83/bbl Wednesday on the International Petroleum Exchange. The March natural gas contract gained 8.7¢ to the equivalent of $3.01/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 5¢ Wednesday to $31.30/bbl.

Contact Sam Fletcher at [email protected]