Sam Fletcher
Senior Writer
HOUSTON, Dec. 18 -- Energy prices rebounded Wednesday, generally recouping losses from the previous trading session, after the US Energy Information Administration reported commercial US oil inventories had fallen to a record low for December.
During the week ended Dec. 12, US crude stocks plunged by 5.1 million bbl to 272.8 million bbl, said EIA officials (OGJ Online, Dec. 17, 2003). That's the lowest level ever recorded in December since the federal government began keeping records in 1982. The American Petroleum Institute subsequently reported a smaller decline to an even lower level, down by 2.06 million bbl to 271.98 million bbl for the same period.
API also reported that US distillate inventories dropped by 1.3 million bbl to 133.2 million bbl, with gasoline stocks down by 420,000 bbl to 202.9 million bbl. EIA said distillates lost 1.4 million bbl to 130.7 million bbl last week, while gasoline inventories increased by 1.9 million bbl to 202.4 million bbl.
The unexpectedly large drawdown of US crude so early in the winter reawakened concerns about possible shortages in the case of sustained cold weather or disruption of fuel supplies, analysts said.
Early Thursday, EIA reported a larger-than-expected extraction of natural gas from US underground storage, down by 134 bcf to 2.85 tcf during the week ended Dec. 12. That exceeded the consensus among Wall Street analysts of 124-128 bcf and the previous week's withdrawal rate of 111 bcf. Natural gas in storage remains 215 bcf higher than last year at this time and 39 bcf above the 5-year average. However, the latest report marks the third consecutive week that the storage differential to the 5-year average has narrowed, analysts said.
Improved market outlook
Based on the growing demand for energy worldwide and continued weakness of the US dollar, Banc of America Securities LLC, New York, on Thursday raised its 2004 price forecasts to an average $28.80/bbl for benchmark US crudes, from $24.75/bbl previously, and to an average $4.65/Mcf for US natural gas, up from $4/Mcf. The investment bank raised its 2005 oil price forecast to $27.10/bbl from $22/bbl.
"It is becoming more obvious that either higher natural gas and crude oil prices are the new norm, or the anomaly is lasting several years," said James K. Wicklund, an analyst in Banc of America's Houston office. "Since mid-2000, natural gas prices have been over $4/Mcf 63% of the time (on a monthly basis) and had never been above $4/Mcf [as a monthly average] before that. For the previous 10 years up until January 2001, the average prompt month natural gas price was $2.08/Mcf. It is currently above $7/Mcf," he said.
The US dollar has weakened 20% relative to the euro since the third quarter of 2002 and has declined relative to most major currencies over the last 12 months, as the US Federal Reserve maintained its policy of low interest rates. Banc of America officials expect the dollar to continue to weaken "before strengthening occurs later in 2004."
Since oil is priced internationally in US dollars, the weakening currency allows European refiners to buy more oil for the same amount of euros. That, said Banc of America analysts, contributed $3/bbl to their increased oil price forecast in 2004 and $1.45/bbl to the forecast for 2005. "A 5% move in the dollar-euro exchange rate affects our crude oil fair price estimate by approximately 75¢/bbl," they said.
Energy prices
The January contract for benchmark sweet, light crudes climbed by 46¢ to $33.35/bbl Wednesday on the New York Mercantile Exchange, with the February contract up by 44¢ to $33.39/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 50¢ to $33.38/bbl.
Heating oil for January rebounded by 2.34¢ to 94.18¢/gal Wednesday on NYMEX. Unleaded gasoline for the same month continued to advance, up by 1.61¢ to 91.94¢/gal.
The January natural gas contract bounced back by 24.6¢ to $6.99/Mcf Wednesday, wiping out the previous day's loss. Purchases by speculative investors and local utilities "kicked in after the early release of an unexpectedly bullish crude oil stock report, along with bullish natural gas technicals," said analysts Thursday at Enerfax Daily.
An "unexpectedly cold start" to December triggered the previous run-up in natural gas prices that pushed the January contract to a new high of $7.55/Mcf on Dec. 10. "While temperatures are expected to cool later this week after a brief midweek warm-up, some private forecasters were looking for milder weather late next week," said Enerfax analysts.
"Natural gas prices have now risen above No. 2, or distillate, fuel oil prices (on an energy equivalent basis) in all of the three key fuel-switching regions for the first time since this summer," said Robert Morris with Bank of America in New York.
"However, substantial switching away from natural gas to distillate if this disparity persists may not transpire until January when existing contracts [and] commitments expire. Importantly, the relative price of natural gas to distillate fuel oil during the last week of December, or 'bid-week'—when users typically make the majority of their fuel usage decisions for the subsequent month—will be a key driver of the potential incremental fuel-switching away from natural gas to distillate in January," he reported Thursday.
Other energy prices
In London, the February contact for North Sea Brent oil gained 62¢ to $30.59/bbl Wednesday on the International Petroleum Exchange. Gas oil for January delivery advanced by $3.25 to $274/tonne. However, the January natural gas contract lost 5.4¢ to the equivalent of $5.98/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 11¢ to $30.45/Mcf Wednesday.
Contact Sam Fletcher at [email protected]
