Market watch: Energy futures prices fluctuate with UN war debate

March 6, 2003
Energy futures prices generally declined Wednesday as new declarations by Germany, Russia, and France in opposition to war with Iraq ended the previous day's rally.


Sam Fletcher
Senior Writer

HOUSTON, Mar. 6 -- Energy futures prices generally declined Wednesday as new declarations by Germany, Russia, and France in opposition to war with Iraq ended the previous day's rally.

However, the US administration's insistence that it may proceed with a military move against Iraqi President Saddam Hussein without the support of other members of the United Nations kept losses minimal, analysts said.

The April contract for benchmark US sweet, light crudes dropped 20¢ Wednesday to $36.69/bbl on the New York Mercantile Exchange.

Meanwhile, the May position advanced by 5¢ to $34.96/bbl. Unleaded gasoline for April delivery plunged 1.13¢ to $1.10/gal. Heating oil for the same month dipped 0.47¢ to $1.04/gal.

The US Department of Energy reported Wednesday that US crude inventories increased by 1.7 million bbl to 273.6 million bbl during the week ended Feb. 28, with US gasoline stocks down by 2 million bbl to 206.1 million bbl and US distillates losing 2.6 million bbl to 96.5 million bbl.

For the same period, the American Petroleum Institute reported a drop of 2.5 million bbl in US oil inventories to 268.8 million bbl. It said US gasoline stocks declined by 2.3 million bbl to 207.6 million bbl, while distillates fell by 3.5 million bbl to 100.4 million bbl.

"Of the two inventory reports, the DOE crude estimate of build of 1.7 million bbl is more credible, given its estimate of a reduction in refinery runs of 275,000 b/d and increased imports of 354,000 b/d as Venezuelan import volumes returned to prestrike levels," said

Matthew Warburton, UBS Warburg LLC, New York, in a Thursday report. Despite a "sizeable" difference between DOE and API estimates of US crude inventories, he said, "Continuing draws (on) product inventories will further reinforce the recovery in refining margins witnessed in February."

Warburton noted that US heating oil inventories continued to fall, "despite a 256,000 b/d (weekly) increase, given strong implied demand growth (+18% year-over-year), resulting in heating oil futures reaching all-time highs in New York Harbor." He said, "With a 35¢ price differential between April and August (heating oil contracts), we expect refiners to continue to practice just-in-time production and avoid any increase in near-term inventories and leaving the marginal supply to imports."

Warburton said, "Given current prices and with (US East Coast) heating oil inventories 16% less than year-ago levels, it is possible that calls may emerge soon to release the 2 million bbl heating oil reserve in the Northeast to moderate prices."

So far, the Bush administration has been reluctant to release any strategic reserves of oil or refined products, pending the start of military action against Iraq.

The April natural gas contract slipped by 2¢ to $7.02/Mcf Wednesday. "The market opened down and traded under $6.90(/Mcf) most of the morning before rallying back somewhat in afternoon trading, hitting a daily high of $7.15(/Mcf) mid-afternoon, and then dipping back late. Near the end of the session, long marketers searched for buy-stops up to $7.10-$7.12(/Mcf) and sold off when they couldn't find them," analysts at Enerfax Daily reported Thursday.

They said, "In what has become an expensive and confused market perched on the edge of continued winter cold and thinning storage levels, traders point to 20¢ (/Mcf) vacuums between bids that lead the market up and down and send a host of traders to the sidelines or into the back months. Locals were pushing the market back and forth in a 40¢ (/Mcf) range, and commercials on the sidelines refused to contribute any follow-through bidding."

The US Energy Information Administration reported Wednesday that 176 bcf of natural gas was withdrawn from US underground storage during the week ended Feb. 28, up from 154 bcf the previous week and 145 bcf during the same period a year ago. US gas inventories now stand at 838 Bcf, down 981 bcf from year-ago levels and 602 bcf below the 5-year average.

That means the US gas market last week was undersupplied by 200 MMcfd, compared with the same period in 2002 and by 2.4 bcfd, based on the 5-year average, said UBS Warburg analysts in a separate report Thursday on gas inventories.

That, they said, represents "a vast improvement over the trend of the prior 7 weeks. We estimate the market has been undersupplied by 4.6 bcfd over the last month, relative to the 5-year average, and 2.9 bcf relative to 2002."

The latest withdrawal figures mark "the second consecutive week of demand erosion", that report said.
In London, the April contract for North Sea Brent oil was down 9¢ to $33/bbl Wednesday on the International Petroleum Exchange, with bearish US inventory figures providing "justification" for traders to take profits, brokers said.

The April natural gas contract jumped by 12.6¢ to the equivalent of $2.97/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 17¢ to $32.29/bbl Wednesday.

Contact Sam Fletcher at [email protected]