Sam Fletcher
Senior Writer
HOUSTON, June 26 -- Energy futures prices shot up Wednesday as government and industry officials surprised traders with bullish reports of plunging US inventories of oil and petroleum products.
The US Energy Information Agency said Wednesday that US oil inventories fell by 4.1 million bbl to 284.2 million bbl during the week ended June 20. It reported US gasoline stocks dropped by 900,000 bbl to 208.2 million bbl, while distillate inventories were virtually unchanged at 109.4 million bbl. The report by the American Petroleum Institute for the same period was even more pessimistic, with crude inventories plummeting more than 9 million bbl to 280.6 million bbl, gasoline stocks dropping 1.7 million bbl to 209.1 million bbl, and distillates down 521,000 bbl to 109.3 million bbl.
Traders, expecting another build in US inventories for the latest week, blamed a decline in imports for the fall. API reported US imports of crude dropped by 883,000 b/d to 9.5 million b/d, while imported petroleum products increased by 127,000 b/d to 2.6 million b/d.
Oil prices jump
The August contract for benchmark US sweet, light crudes jumped by $1.17 to $29.95/bbl Wednesday on the New York Mercantile Exchange. The September position advanced by 98¢ to $29.34/bbl. Heating oil for July delivery shot up 3.44¢ to 77.91¢/gal. Unleaded gasoline for the same month gained 3.01¢ to 85.6¢/gal.
"The quarter is drawing to a close with the average price of West Texas Intermediate homing in on $28.90/bbl. That represents the highest second quarter average since 1984," said Paul Horsnell, J.P. Morgan Securities Inc., London. However, he noted in his weekly oil report Thursday, "Prices are also ending the quarter at almost exactly the same level as they began it, raising the question of what has changed over the last 3 months."
While US crude inventories "bounce up 1 week and down the next, depending primarily on the bunching of import cargoes," Horsnell said, "the overall pattern is no real change over the last 2 months."
Moreover, he said, the market recently has been sending wrong signals to US refiners "by collapsing product-to-crude (price) spreads and weakening refinery margins." As a result, said Horsnell, "Within a month, the system has gone from trying to run at a dangerously fast rate to now producing too little for balance." With markets tightening and the summer driving season now in full swing, he said, "The opportunity to ease the gasoline situation has been lost."
Iraq
One thing that has changed in the past 3 months is the market's perceptions of postwar Iraqi oil production, Horsnell said. "Far from being an opportunity for oil companies and a mechanism for weakening (the Organization of Petroleum Exporting Countries)," he said, "Iraq is instead a continuing source of bad news and rapidly becoming just a gray area on the map. The intensity of attacks against Iraqi oil infrastructure and the failure so far of coalition forces to begin to get a grip on the situation suggests that this will be a long running story."
Horsnell said, "Indeed, we would now even question whether Iraqi output can ever regain the prewar production level in a sustainable fashion during what now looks likely to be a lengthy period of occupation. The combined time necessary for conditions to be stabilized, for there to be an Iraqi government, for petroleum laws to be formed, for negotiations to be carried out, and then for oil companies to begin operations to develop fields, now seems to stretch well beyond 2010."
Natural gas
The July natural gas contract inched up 6¢ to $5.76/Mcf Wednesday on NYMEX, "essentially splitting the difference between major open interest levels at option strikes of $5.50(/Mcf) and $6(/Mcf), and could be an impetus for another push upward," said analysts Thursday Enerfax daily.
EIA reported Thursday a record 127 bcf of gas was injected into US underground storage during the week ended June 30, up from 114 bcf the previous week and 95 bcf during the same period last year. US gas storage now stands at 1.6 tcf, down 653 bcf from a year ago and 370 bcf below the 5-year average.
That's the second time this month that EIA has reported record injections. Its June 12 report of a record 125 bcf injection for the week ended June 6 triggered a sharp price drop of 60.7¢/Mcf on NYMEX (OGJ Online, June 13, 2003). However, a subsequent EIA report reduced that injection to 114 bcf (OGJ Online, June 20, 2003.
If this report bears out, it will be the largest injection ever recorded by EIA and will surpass the previous record high of 120 bcf reported by the American Gas Association when it tracked that data.
Meanwhile, Daniel Yergin, chairman of Cambridge Energy Research Associates, said Thursday, "The US faces a natural gas shortage that is reflected in today's higher natural gas prices, and the prospect of sustained high and disruptive prices looms if the summer is too hot or the winter too cold."
Speaking at a summit meeting on natural gas cohosted by Energy Secretary Spencer Abraham and the National Petroleum Council, Yergin warned, "The magnitude of the crisis will be measured in the bills faced by homeowners, power suppliers, and industrial users, and in the plants shut down, jobs lost, and industrial production capacity exported."
Other prices
In London, the August contract for North Sea Brent oil jumped by $1.03 to $27.65/bbl Wednesday as traders, surprised by the fall in US inventories, scrambled to close out short sales on the International Petroleum Exchange. However, the July natural gas contract lost 2.2¢ to $2.81/Mcf on IPE.
The average price for OPEC's basket of seven crudes gained 32¢ to $26.58/bbl on Wednesday.
Contact Sam Fletcher at [email protected]
