MARKET WATCHRising stocks push crude futures below $58/bbl

Feb. 16, 2006
Energy prices continued to fall Feb. 15, with crude futures dropping below $58/bbl for the first time since November following another rise in US inventories.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 16 -- Energy prices continued to fall Feb. 15, with crude futures dropping below $58/bbl for the first time since November following another rise in US inventories.

The Energy Information Administration reported commercial US crude stocks climbed by 4.9 million bbl to 325.6 million bbl during the week ended Feb. 10, the highest level since June 24. Gasoline inventories rose by 2.2 million bbl to 225.5 million bbl, while distillate fuel stocks increased by 900,000 bbl to 136.9 million bbl.

But after 6 weeks of unusually large inventory increases, Jacques Rousseau at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., sees signs that the buildup is slowing despite higher imports. "This suggests that seasonally lower production is beginning to have a material impact on inventories," he said.

Paul Horsnell of Barclays Capital Inc., London, said, "We do wonder if the stage is not now being set for some larger-than-normal decreases at some point over the next couple of months." He noted that the current build of gasoline inventories is unique to the US. Gasoline inventories in Europe and Japan are 9 million bbl lower on average from year-ago levels, compared with a 3.8 million bbl increase in the US.

US demand for gasoline remains robust, supported by the strengthening US economy and pending fall in retail prices to catch up with retreating US wholesale prices for gasoline. "US retail gasoline prices have begun what is likely to be a fairly steep descent over coming weeks," Horsnell said.

"It appears to us that the process has overshot," he said. "Instead of a gentle touch on the rudder, the market has delivered a move in wholesale prices that will pump demand up through lower retail prices, has closed all arbitrage windows and hence will depress imports down the line, and has also collapsed the profitability of refining in a way that will start to constrict supply."

Horsnell said, "One of the strange dislocations in recent weeks is that the oil market has become less concerned about Iran at precisely the same time as we detect that political analysts and diplomatic circles have become considerably more worried."

Energy prices
The March contract for benchmark US sweet, light crudes plunged by $1.92 to $57.65/bbl Feb. 15 on the New York Mercantile Exchange. The April position lost $1.78 to $59.25/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.92 to $57.66/bbl. Heating oil for March delivery dipped by 0.25¢ to $1.61/gal on NYMEX. Gasoline for the same month slipped by 0.01¢ to $1.38/gal.

The March natural gas contract declined by 4.8¢ to $7.07/MMbtu Feb. 15 on NYMEX, "dropping for an 8th day" to a 7-month low, said analysts at Enerfax Daily. "Prices have tumbled 55% from a $15.78[/MMbtu] peak in December but are still 14% higher than a year ago," they said.

On Feb. 16, EIA reported the withdrawal of 102 bcf of natural gas from US underground storage during the week ended Feb. 10. That compares with withdrawals of 88 bcf the previous week and 176 bcf in the same period last year. US gas storage now stands at 2.3 tcf, up by 444 bcf from a year ago and 691 bcf above the 5-year average.

In London, the April contract for North Sea Brent crude dropped $1.37 to $58.15/bbl on the International Petroleum Exchange. The March gas oil contract increased by $5.50 to $518.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of benchmark crudes lost 85¢ to $54.45/bbl on Feb. 15.

Contact Sam Fletcher at [email protected].