Sam Fletcher
Senior Writer
HOUSTON, Feb. 22 -- Crude futures dropped to near $98/bbl Feb. 21, ending a six-session rally, following reports that US oil inventories rose more than expected in the previous week.
The Department of Energy's Energy Information Administration said commercial US crude inventories rose by 4.2 million bbl to 305.3 million bbl in the week ended Feb. 15, up from a Wall Street consensus of a 2.7 million bbl increase. Gasoline inventories gained 1.1 million bbl to 230.3 million bbl in the same week, vs. Wall Street expectations of a 500,000 bbl increase. Distillate fuel inventories fell 4.5 million bbl to 122.5 million bbl, more than the expected decline of 1.7 million bbl.
Michael C. Schmitz, Banc of America Securities LLC, New York, said, "The larger-than-expected build [in crude] was primarily due to a decline in refinery utilization from 85.1% the prior week to 83.5% (the lowest since March 2006) due to seasonal maintenance, combined with an increase in imports to 10.1 million b/d from 9.7 million b/d the prior week. Thus, current crude inventories of 305 million bbl, which equate to about 21 days of demand coverage, are 6.8% below last year and 0.6% above the 10-year average. Gasoline production averaged 70,000 b/d lower than the prior week with low utilization being partially offset by above-normal product yields at 61.1%. Total [gasoline] imports remained essentially flat."
Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, noted that refined product inventories of gasoline, distillate, and jet fuel dropped 4.7 million bbl (1.2%) vs. the prior week, marking "the first decline in 9 weeks." Rousseau said, "We expect this positive trend to continue due to seasonal rising demand (which increased 6% week-over-week) and lower supply. We view falling inventories as a leading indicator for improvements in refining margins and share prices." He said refined product inventories should decline by 10% by the end of the first quarter.
However, Olivier Jakob at Petromatrix, Zug, Switzerland, said, "We do not view the DOE statistics as a real shocking surprise as a correction on crude stocks due to fog delays the previous week was expected. Rather, the market has been lacking a convincing argument for the latest rally and the statistics failed to provide a clear excuse for it. The rest of the commodity spectrum managed to make further gains but even a dollar index under pressure could not provide enough support to crude oil while the equity markets are still seeking for the light out of the tunnel."
Jakob said, "What should be worrying for crude oil is the rapid deterioration of most relative values. The gasoline crack has lost most of the gains made last week, likewise for the RBOB-to-heating oil spread; the [North Sea] Brent front backwardation is falling to single digits; [and] the West Texas Intermediate-to-Brent spread widens back close to a $2/bbl premium."
Meanwhile, Paul Horsnell at Barclays Capital Inc., London, said, "A second week of sharply higher prices has seen the entire raft of crude oil price records broken again. The value of the Organization of Petroleum Exporting Countries' basket rose by $4.38 to set a new record of $94.23/bbl, while in euro terms it gained €2.90 to €64.34/bbl."
Horsnell pointed out, "The March [crude] contract expired at a record settlement price of $100.74/bbl, having risen by $7.47 over its final week of trading to bring the accumulated gains over the past two weeks up to $13.60/bbl. The new intraday all-time high is $101.32/bbl [on Feb. 20]. Along the curve, the December 2015 contract rose by $2.97 to another new all-time high for the back of the exchange-traded curve of $93.46/bbl. April Brent rose by $5.49 to $98.42/bbl, with WTI thus reasserting its premium over Brent after a brief period of what we saw as a very perverse Brent premium. Backwardation is also reasserting itself."
Analysts in the Houston office of Raymond James & Associates Inc. said, "Both crude and natural gas have rallied significantly in the last 2 weeks (up16%) on the combination of geopolitical events and colder winter weather. With that said, it may be time to start thinking about the shoulder season doldrums on the horizon. The lack of visible near-term catalysts as we head out of winter could put pressure on both commodities, which in the past has created extremely compelling buying opportunities."
Energy prices
The new front-month April contract for benchmark US light, sweet crudes dropped $1.47 to $98.23/bbl Feb. 21 on the New York Mercantile Exchange, while the May contract lost $1.45 to $97.81/bbl. Contracts for subsequent months remain in contango with sequentially lower prices per bbl through February 2009. On the US spot market, WTI at Cushing, Okla., was down $2.36 to $98.39/bbl. The March contract for reformulated blend stock for oxygenate blending (RBOB) fell 6.32¢ to $2.52/gal on NYMEX. Heating oil for the same month declined 1.65¢ to $2.74/gal.
The March natural gas contract dropped 7.4¢ to $8.89/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 12¢ to $8.90/MMbtu.
In London, the April IPE contract for North Sea Brent crude lost $2.18 to $96.24/bbl. However, the March gas oil contract gained $3 to $888/tonne.
The average price for OPEC's basket of 12 reference crudes declined by 26¢ to $93.97/bbl on Feb. 21.
Contact Sam Fletcher at [email protected].
