Sam Fletcher
Senior Writer
HOUSTON, Oct. 27 -- Energy futures prices jumped higher in a surprise turnaround Tuesday, with natural gas soaring to a 20-month high on the New York Mercantile Exchange.
Traders kept bidding up prices, although analysts reported no change in market fundamentals and little variation in technical factors.
Distillate stocks plunge
Early Wednesday, the Energy Information Administration reported a sharp drop in US distillate inventories for the sixth consecutive week, down by 2.4 million bbl to 116.6 million bbl during the week ended Oct. 22. That's "below the lower end of the average range for this time of year," EIA officials said.
US commercial inventories of crude jumped by 4 million bbl to 283.4 million bbl during the same period, still near the lower end of the average range, while gasoline stocks rose by 1.3 million bbl to 201.2 million bbl.
"The US heating oil market has become the point of greatest friction among the profusion of constraints, shortages, and choke points that now characterize the global oil market," said Paul Horsnell, Barclays Capital Inc., London. "The latest [EIA] data show no letting up in the constriction of the US distillate market, with inventories continuing to plunge far earlier than they should under the normal season pattern. The remarkable feature of the data is that it shows absolutely no progress at all in terms of the system moving towards any equilibrium."
Horsnell noted, "The relative price movement between gasoline and heating oil over the last 3 weeks has been more than $5/bbl in favor of heating oil. In all, the market has provided a massive incentive for refineries to maximize distillate yields and minimize gasoline yields. However, that has not been the result. Gasoline production has climbed back towards its level prior to Hurricane Ivan. Heating oil output, by contrast, is still languishing."
US refinery operations remain some 6% below pre-hurricane levels, he said. "While there are a few lags still to work through, the US refinery system does seem to be having difficulties in optimizing, given the general lack of flexibility accompanied by the shifts in the crude slate and in the availability of units," said Horsnell.
GOM disruptions continue
More than a month after Hurricane Ivan made landfall in Alabama on Sept. 16, there are 332,072 b/d of crude and 1.3 bcfd of natural gas production in the gulf still shut in because of damage from that storm, said US Minerals Management Service officials Wednesday in New Orleans. Lost offshore production since Sept. 11 now totals 25.5 million bbl of oil and 104.5 bcf of natural gas, MMS said.
Underwater mudslides triggered by Ivan "created some major pipeline problems that we expect will persevere into next year," said Horsnell.
Energy prices
The November natural gas contract shot up by 51.2¢ to $8.40/Mcf Tuesday on NYMEX, despite predictions for mostly mild weather this week. "The shorts [traders with open sales contracts] were watching some steady buying in the winter months, and they panicked, particularly ahead of the November contract expiration, and then an afternoon rally in crude oil added fuel to the fire," said analysts Wednesday at Enerfax Daily.
"It looks like the [investment] funds are running the market with reckless abandon and with no basis in fundamentals," they concluded.
The December contract for benchmark US sweet, light crudes jumped by 63¢ to $55.17/bbl Tuesday on NYMEX, while the January position advanced by 59¢ to $54.76/bbl. On the US spot market, West Texas Intermediate lost 5¢ to $55.18/bbl. Gasoline for November delivery climbed by 1.5¢ to $1.41/gal on NYMEX. Heating oil for the same month inched up by 0.28¢ to $1.5681/gal.
In London, the December contract for North Sea Brent crude gained 78¢ to $51.56/bbl on the International Petroleum Exchange.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes declined by 58¢ to $45.48/bbl Tuesday.
On Wednesday, Purnomo Yusgiantoro, OPEC's conference president, told reporters he asked US officials to release crude from the Strategic Petroleum Reserve "to help cool down [energy] prices." He did not say what response, if any, he received. However, the administration of President George W. Bush has previously expressed reluctance to use the SPR of anything but to offset major supply disruptions.
Contact Sam Fletcher at [email protected]
