Sam Fletcher
Senior Writer
HOUSTON, Mar. 27 -- Crude and gasoline prices surged Mar. 26 on the New York futures market after a segment of the Department of Energy reported a large draw in gasoline inventories and only a marginal build in oil stocks.
In the week ended Mar. 21, US crude inventories increased by a marginal 88,000 bbl, well below the Wall Street consensus of a 1.8 million build and a 10-year average increase of 3.4 million bbl, primarily due to a 570,000 b/d decline in oil imports (OGJ Online, Mar. 26, 2008). "Refinery utilization, contrary to consensus for a 0.5% uptick, dropped from 83.8% to 82.2%, the lowest since October 2005, as a result of continuing maintenance activities," said Michael C. Schmitz, Banc of America Securities LLC, New York. "Current crude inventories of 312 million bbl, which equate to 21 days of demand coverage, are 5% below last year but in line with the 10-year average."
Gasoline stocks fell 3.3 million bbl to 229.2 million bbl during the same period, a much sharper decline than the 1 million bbl draw that Wall Street analysts expected. "Heating oil, or high sulfur distillate fuel oil, inventories fell 1.3 million bbl to 25.6 million bbl, 36.4% below last year and 42.4% below the 10-year average," Schmitz said.
Nonetheless, Olivier Jakob at Petromatrix, Zug, Switzerland, advised, "Forget about the DOE statistics, the rally in oil is again all about the dollar trade." He said, "As long as the dollar is sold to reach new lows, [investment] banks will be buying crude oil with the objective of testing the recent highs to induce a momentum breakthrough to the $115-120/bbl target. Gold for now has been somewhat lagging the recent move, but if it manages to also gain upside momentum, then the overall move will accelerate on oil."
Jakob said, "The patterns of the last 10 days remain valid and show that the oil fundamentals only reassert themselves when the dollar manages to find a bottom. There is nothing really exceptional in a gasoline draw at this moment of the season and the days of cover are well above previous years but when the dollar trade is on it requires much more damaging statistics (US crude oil stocks are unchanged for the last 3 weeks) to dent the momentum."
Iraq bombing
On Mar. 27, Jakob said, "The main current fundamental risk for oil is the extended fighting in Basrahh and this morning a report of a bomb attack on one of [Iraq's] export pipelines will bring a risk premium for the weekend."
For the first time since 2004, a bomb apparently damaged severely one of two main pipelines transporting crude to Iraq's primary export terminal, sharply reducing exports from southern Iraq. The resulting fire was quickly extinguished, but officials said it will temporarily curtail a third of the crude exported through Basrah, where Iraqi security forces are engaged in a major military operation against armed militants. The fighting was already preventing oil workers from reaching their job sites. Iraq's primary source of oil for export is from its southern fields through its Basrah terminal that loaded 1.54 million b/d, officials said.
Earlier this week, Iraq's oil ministry said crude exports from that country increased by 10,000 b/d in February to preinvasion levels of 1.93 million b/d, primarily as the result of improved security for the Kirkuk oil field and the northern export pipeline to Turkey (OGJ Online, Mar. 25, 2008). Sabotage and technical problems frequently halted exports from northern Iraq since the 2003 US-led invasion. However, Iraqi officials said they managed to sustain 393,000 b/d of export from the northern oil fields since last summer.
"We see events in Iraq as having taken a dangerous turn, with the stability of the southern oil system now starting to become a potential concern," said Paul Horsnell at Barclays Capital Inc., London. He said, "Arguably considerations of the current geopolitical context have been playing a very minor role in oil trading strategies in recent months. Equally arguably, they perhaps should now be playing a larger role, given that the key geopolitical issues have remained raw and unresolved, and because the reduction in global crude inventories has meant less cover and more potential for volatility."
Although traders previously focused attention on the disruption of Iraq's oil exports from its northern fields through a pipeline to a terminal in Turkey, Horsnell said, "In the short term, the main danger has always been an unraveling of the precarious balance between competing factions and other interest groups in the south of Iraq. What has occurred so far is not yet a full unravelling, but it certainly represents a series of steps towards some potentially dangerous outcomes."
Energy prices
The May contract for benchmark US sweet, light crudes shot up $4.68 to $105.90/bbl Mar. 26 on the New York Mercantile Exchange. The June contract escalated by $4.31 to $105.14/bbl. On the US spot market, West Texas Intermediate was up $4.92 to $105.90/bbl. Heating oil for April jumped 11.9¢ to $3.04/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) hit an intraday record high of $2.78/gal before closing at $2.74/gal, up 6.27¢ for the day.
The April contract for natural gas jumped 15.3¢ to $9.57/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 6.5¢ to $9.32/MMbtu.
In London, the May IPE contract for North Sea Brent crude increased by $3.39 to $103.99/bbl. The April gas oil contract jumped by $38 to $947.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes rose by $2.22 to $98.42/bbl.
Contact Sam Fletcher at [email protected].
