Paula Dittrick
Senior Staff Writer
HOUSTON, Mar. 27 -- Unleaded gasoline futures prices for April jumped by 3.93¢ to 92.42¢/gal on the New York Mercantile Exchange Wednesday after the US Energy Information Agency reported gasoline inventories declined by 2.1 million bbl to 199 million bbl for the week ended Mar. 21.
US crude oil stocks increased by 3.7 million bbl to 273.9 million bbl for the same period. The boost in gasoline prices helped boost crude oil prices, said analysts.
"As we transition to the summer-grade season, supply-demand pressures for gasoline are expected to manifest in higher than historically normal gas cracks—the per barrel price spread between unleaded and crude which drives refining profit margins—consistent with our views these past 4 months about the 2003 summer driving season," said Michael Rothman, senior energy market specialist with Merrill Lynch Global Securities Research & Economics Group, Thursday.
For instance, refining profit margins on the US West Coast posted a 2-year high within the last week, he said.
If demand for the Organization of Petroleum Exporting Countries' crude oil exceeds the Merrill Lynch forecast because of storage rebuilding, planned addition to the US Strategic Petroleum Reserve, and fuel switching away from natural gas, then the global output "capacity cushion" of 1.2 million b/d could shrink to fewer than 500,000 b/d. That compars with 6.8 million b/d before Iraq's 1990 invasion of Kuwait, Rothman said.
Crude futures traders also decided again that the US-led war in Iraq could be longer than initially expected. They acknowledged that an uprising against the Iraqi government in the city of Basra was not as significant as early reports had indicated.
Nigeria, Venezuela exports
Crude export outages because of civil unrest in Nigeria and Venezuela also have helped support oil prices. A military-tribal clash reportedly caused 800,000 b/d of Nigeria's oil output to be shut down as of Mar. 26.
"Current oil prices are not fully reflecting the tightness in inventories and gasoline problems, let alone the current geopolitical context," said Paul Horsnell, analyst for J.P. Morgan Securities Inc., London.
He said the status of exports for second half 2003 "is open to question. That implies that market concerns about supposed OPEC overproduction are totally misplaced. Indeed, we may have exactly the reverse problem."
Horsnell said supply concerns would be valid even if Nigerian supplies could be guaranteed but "they cannot be. . . . We are not confident that any ceasefire with the Ijaw (tribal fighters) will keep a lid on the problem."
Venezuela was a key supplier of oil to the US before a general strike started in December against the government of President Hugo Chávez.
Government officials claim the country has restored its oil production to more than 3 million b/d, but former officials of gutted state oil company Petroleos de Venezuela SA claim current production actually is 2.4 million b/d.
Current PDVSA COO Luis Marin briefed Washington, DC-based PCF Energy last week in an effort to help convince US officials that Venezuelan crude production is 2.95 million b/d, including synthetic crude, and is expected to average 3 million b/d in April.
Acknowledging inconsistencies in data from government and former PDVSA officials, Marin insisted that production recovery has been much faster and more thorough than many believed possible.
Meanwhile, Venezuela's gasoline exports are to be restored at the end of March, Energy Minister Rafael Ramirez told reporters in Caracas Wednesday.
On Thursday, Reuters wire service reported that PDVSA plans to shut its 195,000 b/d Puerto de la Cruz refinery for 25 days during the first half of May for maintenance. Puerto de la Cruz was the only Venezuelan refinery not shut during the strike, Reuters reported.
Market prices
The May contract for benchmark US light, sweet crudes gained 66¢ to $28.63/bbl Wednesday on NYMEX. The June contract was up 37¢ to $26.83/bbl.
Refined products also closed higher. Heating oil for April delivery rose 0.92¢ to 74.41¢/gal.
The April natural gas contract, which expired Thursday, gained 2¢ to $5.10/Mcf Wednesday on NYMEX. Gas in storage was 643 bcf as of Mar. 21, EIA estimates showed Thursday. That was a net increase of 7 bcf from the previous week. Stocks were 918 bcf fewer than last year at this time and 580 bcf below the 5 year average of 1.2 tcf.
The May contract for North Sea Brent oil rose toward the close of trading Wednesday on the International Petroleum Exchange upon reports of fierce Iraqi resistance.
The IPE May Brent futures settled at $25.29/bbl, up 48¢ from Tuesday's settlement. Wednesday's high was 25.80/bbl, and the low was $25.05/bbl.
Traders said futures values were expected to rally Thursday upon concerns that strong Iraqi resistance would slow the allied troops' advance into Baghdad. Traders expected prices to test resistance at $26/bbl but believed that prices were unlikely to break through that level Thursday, traders forecast.
The April natural gas contract lost 2¢ to the equivalent of $2.73/Mcf Wednesday on IPE.
The average price for OPEC's basket of seven benchmark crudes dropped by $1.30 to $25.54/bbl Wednesday.
Contact Paula Dittrick at [email protected]
