Sam Fletcher
Senior Writer
HOUSTON, Mar. 13 -- Futures prices for oil and petroleum products jumped Wednesday as reports by both the US Department of Energy and American Petroleum Institute of drawdowns of US inventories touched off a buying spree among traders who had anticipated a build of those stocks.
DOE reported a 3.8 million bbl drawdown of US oil stocks to 269.8 million bbl for the week ended Mar. 7, vs. API's estimated decline of 1.7 million bbl to 267 million bbl. DOE reported a decline of 6.7 million bbl in total US crude and product inventories to 640 million bbl, "15% below their year-ago level and in line with API's estimate," said Matthew Warburton at UBS Warburg LLC.
Regarding US crude stocks, however, he said, "The DOE estimate appears more credible; yet given the marked decline in imports (week-to-week) and with refinery crude inputs rising modestly (up 400,000 b/d to 14.6 million b/d), we would have expected an even larger crude draw."
Despite increased supplies from Venezuela and arbitrage pricing that attracted incremental Middle East and West African crudes to the US, DOE reported US crude imports declined by 1.06 million b/d to 7.6 million b/d—"the lowest level in 4 weeks," Warburton noted. API said US oil imports were down 734,000 b/d to 7.9 million b/d.
"Refiners will ultimately need to procure more crude before they can raise their runs and maximize gasoline production. However, at this juncture, steep backwardation (in NYMEX futures) and fear of declining prices may be discouraging US refiners from nominating the additional barrels on offer," said Warburton.
NYMEX prices
The April contract for benchmark US light, sweet crudes jumped $1.11 to $37.83/bbl Wednesday on NYMEX, while the May position gained 61¢ to $36.35/bbl. Unleaded gasoline for April delivery rose 1.52¢ to $1.1139/gal. Heating oil for the same month was up 0.5¢ to $1.0352/gal.
DOE reported US gasoline inventories fell by 4.1 million bbl to 202 million bbl. API put the decline at 4.9 million bbl to 202.7 million bbl. Robust demand averaging 8.8 million b/d over a 4-week period, up 3.3% from the previous year, outweighed incremental production and imports, Warburton said. "While total gasoline inventories currently stand 7% below the year-ago levels, they remain within their normal seasonal range, particularly given the pending switch to low (Reid vapor pressure summer grade) specifications. The same cannot be said for (reformulated gasoline) stocks, which are 24% below their year-ago levels," he said.
Moreover, said Warburton, "The industry's flexibility to raise runs is limited due to secondary unit maintenance, low crude stocks, and logistical problems, in addition to the severe backwardation in product markets."
Pump prices
The US Energy Information Administration reported Wednesday that US retail prices for unleaded gasoline averaged $1.712/gal on Mar. 10, the highest level for this time of year since EIA began tracking that data in August 1990 and just slightly off an all-time nominal high of $1.713/gal, according to its records. The American Automobile Association reported US retail prices for unleaded gasoline averaged $1.702/gal Tuesday, compared with its record of $1.718/gal on May 15, 2001.
EIA said US retail diesel prices averaged $1.771/gal Mar. 10, setting a new record for the fourth consecutive week. Residential prices for heating oil and propane also are near record levels, it said.
However, EIA officials reported that "retail gasoline and diesel fuel prices are almost entirely driven by changes in spot prices (for oil and petroleum products) over the previous few weeks to such an extent that near-term retail prices can be predicted with accuracy." As long as retail prices conform to that predicted pattern of pass-through, they said, "It can be assumed that no significant (price) gouging is occurring."
Natural gas
The April natural gas contract dropped 7.9¢ to $5.87/Mcf Wednesday on NYMEX. "For the most part, moderating weather forecasts over most of the nation brought on the continued sell-down. Some cold weather is still expected in the Northeast, but even that is easing," said analysts Thursday at Enerfax Daily.
EIA reported Thursday the withdrawal of 117 bcf of natural gas from US underground storage during the week ended Mar. 7. That's down from 176 bcf withdrawn during the previous week, but up from 90 bcf a year ago. US gas storage now stands at 721 bcf, down more than 1 tcf from year-ago levels and 655 bcf below the 5-year average for this time of year.
In London, the April contract for North Sea Brent oil increased by 62¢ to $33.91/bbl on the International Petroleum Exchange. However, brokers said that market is likely to remain volatile and that prices could fall below $33/bbl before rebounding due to political tensions in the Middle East. The April natural gas contract dipped by 0.5¢ to the equivalent of $2.96/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 20¢ to $32.74/bbl Wednesday.
Contact Sam Fletcher at [email protected]
