Sam Fletcher
Senior Writer
HOUSTON, Mar. 17 -- Crude prices soared to new heights Mar. 16 as traders ignored a 500,000 b/d immediate hike in the Organization of Petroleum Exporting Countries' production quota to 27.5 million b/d, which is less than the group's acknowledged production level of 27.7 million b/d among the 10 affected members, minus Iraq.
"It's not the result we wanted," said Adnan Shihab-Eldin, OPEC's acting secretary general, in a report by Dow Jones Newswires.
Instead of OPEC's nominal adjustment of its production quota, traders focused on the latest report from the Energy Information Administration that commercial US gasoline stocks fell by 2.9 million bbl to 221.4 million bbl during the week ended Mar. 11. Distillate fuel stocks were down by 1.9 million bbl to 107.3 million bbl, with a sharp decline in heating oil more than overriding a slight increase in diesel, EIA said. US crude inventories gained 2.6 million bbl to 305.2 million bbl.
US imports of crude decreased by 58,000 b/d to more than 10 million b/d during the same period. However, input of crude into US refineries increased by 180,000 b/d to 15.1 million b/d, with refineries operating at 90.7% of capacity. Production of both gasoline and distillate fuel declined during the week, EIA reported.
Even with the American Automobile Association reporting record high retail prices for gasoline prior to OPEC's Mar. 16 meeting, US gasoline demand appears still to be growing at 2%, analysts said. OPEC's increase of its quota ceiling "might not deflate prices or sentiment significantly in the short run, but it is a necessary first step in providing some defense against extreme market tightness in the second half of this year," said Paul Horsnell, Barclays Capital Inc., London.
In preceding weeks, the scheduled OPEC meeting first was "seen as bullish because there might be a cut, and then seen as bullish because there might not be an increase," Horsnell noted. "Now that there has been an increase, it is quite possible that it could be seen as bullish because it signals a compression in the remaining spare [OPEC production] capacity. In other words, in getting the maximum 'bang for the buck' from the quota increase and the maximum downwards leverage on short-term prices, it might have been better left for later."
Energy prices
The April contract for benchmark US sweet, light crudes shot up to a new high of $56.60/bbl before falling back to a record front-month settlement at $56.46/bbl, up by $1.41 for the day on the New York Mercantile Exchange. The May contract gained $1.39 to $57.04/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $1.42 to $56.47/bbl. Gasoline for April delivery jumped by 4.1¢ to $1.55/gal on NYMEX, while heating oil for the same month climbed by 3.94¢ to $1.59/gal.
The April natural gas contract was up by 1.3¢ to $7.19/MMbtu, "closing with just a modest gain despite a surge in crude oil futures to a new all-time record high," said analysts at Enerfax Daily. EIA said Mar. 17 that 95 bcf of natural gas was withdrawn from US underground storage during the week ended Mar. 11. That compares with withdrawals of 139 bcf last week and 46 bcf during the same period a year ago. US storage now stands at nearly 1.4 tcf, up by 275 bcf from year-ago levels and 270 bcf above the 5-year average..
In London, the International Petroleum Exchange also set records, with the April contract for North Sea Brent trading as high as $54.95/bbl prior to closing at $54.80/bbl, up by 95¢ for the day.
The average price for OPEC's seven benchmark crudes gained 57¢ to a new record of $50.78/bbl Mar. 16.
Contact Sam Fletcher at [email protected]
