Sam Fletcher
Senior Writer
HOUSTON, Dec. 17 -- Energy futures prices slipped Tuesday in what some analysts described as "overpriced markets" not supported by the fundamentals of supply and demand.
However, the US Energy Information Administration early Wednesday reported a large drop in commercial US oil inventories during the week ended Dec. 12, which is likely to help buoy energy prices.
US inventories
US oil stocks plunged by 5.1 million bbl to 272.8 million bbl last week and have fallen a total of 21.2 million bbl over the last 4 weeks to 28.6 million bbl below the 5-year average, EIA officials said Wednesday. Distillates dropped by 1.4 million bbl to 130.7 million bbl last week, with an increase in diesel fuel more than offset by a decrease in heating oil. Distillate fuels inventories are now are 5.1 million bbl below the 5-year average for this time of year.
US gasoline stocks increased by 1.9 million bbl to 202.4 million bbl during the week ended Dec. 12 but are still 3.7 million bbl short of the 5-year average, said EIA.
The latest EIA data are "distinctly bullish," said Paul Horsnell, head of energy research at Barclays Capital Inc., London. "The inventory deficit continues to widen, with the gap between total inventories and their 5-year average increasing by 8.7 million bbl to now stand at 64.1 million bbl. Recent weeks have seen a pattern of tightening in crude oil and a lesser easing in oil products, but this [latest] week both have tightened," he reported Wednesday.
US oil imports decreased by 391,000 b/d last week and were down by an average 57,000 b/d over a 4-week period that ended Dec. 12, said EIA. Crude inputs into US refineries dropped by 404,000 b/d last week, with most of the decline evident in the Midwest and smaller declines on the East and West Coasts.
"With imports remaining compressed, crude inventories continue to head towards minimum operating requirements. The 4-week average of crude imports has now fallen to its lowest level since March, pushing crude inventories down even in the face of a 2.2% fall in refinery utilization," Horsnell said. "The US system does now look likely to enter 2004 with the barest minimum of inventory cover."
Unaffected by Saddam Hussein
Oil prices remained "unaffected" by the recent capture of Iraq's ex-President Saddam Hussein, "with the dominant view being that the capture will not affect the likely recovery path of Iraqi crude oil production," said Horsnell.
Meanwhile, investments into Iraq's oil sector so far "appear to be a pittance relative to what is needed to stop the capacity declines and start to stabilize the system," he said. "There are technocrats within Iraq who believe that the system is being pushed too far in order to get the maximum amount of cash out quickly, whereas the longer-term interests of Iraq will be better served by constraining production in the short term and by putting billions of dollars of investment into the sector with some extreme urgency.
"Ultimately, the resolution of that issue will be more important than how often the pipelines are blow up," Horsnell said.
Energy prices
On the New York Mercantile Exchange, the January and February contracts for benchmark US light, sweet crudes each declined by 29¢ to close at $32.89/bbl and $32.95/bbl, respectively, on Tuesday. West Texas Intermediate at Cushing, Okla., dropped by 30¢ to $32.88/bbl on the US spot market.
Heating oil for January delivery dipped by 0.22¢ to 91.84¢/gal Tuesday on NYMEX. However, unleaded gasoline for the same month inched up by 0.05¢ to 90.33¢/gal. The January natural gas contract fell by 20.7¢ to $6.75/Mcf on NYMEX. "The weather forecast for next week looks a little milder, so the market [corrected] after last week's sharp rally," said analysts Wednesday at Enerfax Daily. However, they said, "There is some difference of opinion over what happens to the weather after Christmas."
In London, the January contract for North Sea Brent oil gained 6¢ to $30.38/bbl Tuesday on the International Petroleum Exchange. Gas oil for January delivery lost $1.25 to $270.75/tonne, however. The January natural gas contract increased by 4.8¢ to the equivalent of $5.99/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes gained 30¢ to $30.34/bbl Tuesday.
Contact Sam Fletcher at [email protected]
