Sam Fletcher
Senior Writer
HOUSTON, Jan. 19 -- The February contract for benchmark US light, sweet oil briefly broke through the $50/bbl floor to a new 20-month low in intraday trading Jan. 18 on the New York market after the US Energy Information Administration reported the first increase in crude inventories in 8 weeks.
EIA said US commercial crude inventories jumped by 6.8 million bbl to 321.5 million bbl in the week ended Jan. 12. US gasoline stocks escalated by 3.5 million bbl to 216.8 million bbl in the same period. Distillate fuel inventories increased by 900,000 bbl to 141.9 million bbl (OGJ Online, Jan. 18, 2007).
"The day's action was concentrated in the 20 min following the [mid-morning] release of the Department of Energy agency report," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. The front-month crude futures price traded in a relative narrow range after that, he said. Even though the price briefly touched $49.90/bbl in intraday trading, the $50/bbl price level "still held as a support line and there was not enough force in the option expiry or the worse-than-expected [EIA] statistics to break it," Jakob said.
The March crude contract "has been relatively better supported" than the February position, "resulting in a contango that is widening in the latest flat price weakness and reversing the tightening trend on the spreads of the first 2 weeks of January," said Jakob. "Product cracks have gained as crude oil is still leading the correction, while natural gas stays supported in view of the colder forecast in the US."
Paul Horsnell at Barclays Capital Inc., London, sees signs in the latest EIA data that "strong gasoline demand has continued, while the sharp fall in runs implies that the pace of the rise in inventories will, like last year, slow and reverse in coming weeks."
Meanwhile, Jakob said, "There has been unmatched expectations for a further [Organization of Petroleum Exporting Countries] emergency meeting; but the physical market is in no need of a further meeting; better compliance to the current plans are more than enough and probably what Saudi Arabia is pushing for." He said, "By not over-reacting on the current price drop, Saudi Arabia is taking an option to not overreact on the way up. The market has been lacking support from the weather and OPEC compliance. The weather pattern is now changing to colder both in the US and Europe, proof of OPEC compliance is still the missing element."
Energy prices
The February contract for benchmark US crudes closed at $50.48/bbl, down by $1.76 Jan. 18 on the New York Mercantile Exchange. The March contract dropped $1.32 to $51.81/bbl On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.76 to $50.49/bbl. Heating oil for February delivery lost 2.91¢ to $1.47/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) declined by 2.33¢ to $1.36/gal.
The February gas contract gained 9¢ to $6.32/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell by 29¢ to $6.28/MMbtu.
In London, the March IPE contract for North Sea Brent crude lost $1.03 to $51.75/bbl. Gas oil for February fell by $6.50 to $463.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes gained 21¢ to $48.23/bbl on Jan. 18.
Contact Sam Fletcher at [email protected].