Sam Fletcher
Senior Writer
HOUSTON, Nov. 2 -- Crude prices slipped despite a bullish report on US fuel inventories Nov. 1 as markets continue to doubt that the Organization of Petroleum Exporting Countries will reduce oil production by 1.2 million b/d to 26.3 million b/d.
Five OPEC members have announced reduction plans, including Saudi Arabia by 380,000 b/d; Iran, 176,000 b/d; Venezuela, 138,000 b/d; UAE, 100,000 b/d; and Algeria, another 100,000 b/d. However, industry sources said they've seen little indication of substantial production cuts by OPEC members by the Nov. 1 effective date.
Meanwhile, Indonesia said this week it would not cut production. Under OPEC's previous quota ceiling of 28 million b/d of crude production for its 10 members other than Iraq, Indonesia was assigned production of 1.45 million b/d. However, its September production topped out at 862,900 b/d and it was a net importer or crude in May-July, sources said. Nigeria, meanwhile, currently has production problems and generally is not expected to reduce current output.
US inventories
The US Energy Information Administration reported commercial inventories of benchmark US light, sweet crudes increased by 2 million bbl to 334.3 million bbl in the week ended Oct. 27. EIA said gasoline stocks fell 2.8 million bbl to 204.6 million bbl last week. Distillate fuel inventories dropped 2.7 million bbl to 141.3 million bbl (OGJ Online, Oct. 31, 2006).
The latest data were positive for refiners, with total refined product supplies up 600,000 b/d from the previous week, "primarily due to increased imports but still insufficient to meet current consumption levels," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va.
"US gasoline demand is growing by 4% year-over-year due to lower prices and base effects. Gasoline inventories are now tight in terms of days of forward cover, with the absolute build relative to the 5-year average having more than halved over the past 3 weeks," said Paul Horsnell at Barclays Capital Inc., London.
Meanwhile, Rousseau said, "The US average ethanol spot market price has risen by about 35¢/gal over the past month and currently stands at $2.08/gal.. . .Wholesale gasoline prices, by comparison, have been relatively flat. This was likely driven by increased discretionary demand, and reduced imports causing domestic supplies to tighten." Total US ethanol consumption for August averaged 5.9 billion gal/year on an annualized basis, "above the prior month and the second highest month on record," he said.
"While ethanol prices were still very high in August, they were well below July's $3.25/gal average, which may explain some of the increased consumption. Also, investors should keep in mind that US ethanol production capacity currently stands at only 5.1 billion gal/year, well-below current consumption levels, and we will get imports only to the extent that domestic prices are high enough to draw volumes from abroad," said Rousseau.
Energy prices
The December contract for benchmark US sweet, light crudes dipped by 2¢ to $58.71/bbl Nov. 1 on the New York Mercantile Exchange. The January contract lost 6¢ to $60.55/bbl. On the US spot market, West Texas Intermediate was down 2¢ to $58.72/bbl. Heating oil for December delivery dropped 1.55¢ to $1.65/gal. Unleaded gasoline for the same month, however, bumped up by 3.57¢ to $1.46/gal.
The December natural gas contract gained 17.8¢ to $7.71/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., escalated by 39¢ to $7.09/MMbtu. On Nov. 2, EIA reported the withdrawal of 9 bcf of natural gas from US underground storage in the week ended Oct. 27, compared with injections of 19 bcf the previous week and 27 bcf during the same period last year. US gas storage now stands at 3.45 tcf, up 288 bcf from a year ago and 276 bcf above the 5-year average. US weather last week was 9% colder than the previous week, 32% colder than last year, and almost 38% colder than the 10-year average, officials said.
In London, the December IPE contract for North Sea Brent crude retreated by 5¢ to $58.98/bbl. Gas oil for November lost $2.50 to $513.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes increased by 88¢ to $54.25/bbl on Nov. 1.
Contact Sam Fletcher at [email protected].
