Sam Fletcher
Senior Writer
HOUSTON, Jan. 14 -- Crude prices inched higher Jan. 13, ending a 5-session "meltdown," as Oil Minister Ali bin Ibrahim Al-Naimi confirmed Saudi Arabia will produce below its official output quota in February.
"Al-Naimi is claiming that Saudi Arabia will do whatever it takes to bring the market back to balance, which basically means [an oil price level of] $75/bbl," said Olivier Jakob of Petromatrix, Zug, Switzerland. He said US government officials and Wall Street analysts generally assume 50% compliance by members of the Organization of Petroleum Exporting Countries with the 2.2 million b/d output reduction approved in December (OGJ Online, Jan. 13, 2009). "But given the current [information] inputs we believe that this is a serious underestimation," Jakob said.
Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. reported, "The front-month natural gas contract traded down to its lowest level since 2006 as the domestic market remains well-supplied."
In other news, the US Department of Commerce said Jan. 14 that December US retail sales plunged lower than expected, in a record 6 months of consecutive declines. Government officials said December retail sales fell 2.7%—more than double Wall Street expectations of a 1.2% decline. US retail sales were down 0.1% for all of 2008, marking the first such loss in annual sales since 1992. The previous weakest performance was a 2.4% increase in 2002.
US inventories
The Energy Information Administration said Jan. 14 commercial US crude inventories increased 1.2 million bbl to 326.6 million bbl in the week ended Jan. 9, less than half of Wall Street's consensus of a 2.8 million bbl build. Gasoline stocks jumped by 2.1 million bbl to 213.5 bbl during the same period, exceeding Wall Street expectations of a 2 million bbl increase. Distillate fuel inventories shot up 6.4 million bbl to 144.2 million bbl, far exceeding the outlook for a 1 million bbl increase. Propane and propylene inventories decreased 2.6 million bbl to 53.7 million bbl.
Jakob noted most of the US increase of middle distillates stocks was in Petroleum Administration Defense District 2—the Midwest, including the Cushing, Okla., storage and distribution point. Moreover, he said, the latest PADD 2 distillates increase "is the largest ever on record," with a total inventory of 34.1 million bbl now in that district. EIA's report on distillate fuels "is very probably incorporating revisions to previous data (and mostly in PADD 2)," Jakob said.
Imports of crude into the US fell 756,000 b/d to 9.7 million b/d in the week ended Jan. 9. The input of crude into US refineries increased by 64,000 b/d, however, to 14.6 million bbl with units operating at 85.2% of capacity. Gasoline production fell to 8.8 million b/d, but distillate fuel production increased to 4.7 million b/d.
Refined product inventories (gasoline plus distillate plus jet fuel) increased 9.1 million bbl or 2.4% last week, "due primarily to weak demand, which fell 7%," said Jacques H. Rousseau, an analyst at Soleil-Back Bay Research.
Energy prices
The February contract for benchmark US light, sweet crudes inched up 19¢ to $37.78/bbl Jan. 13 on the New York Mercantile Exchange. The March contract jumped by $1.12 to $44.77/bbl. On the US spot market, West Texas Intermediate at Cushing was up 19¢ to $37.78/bbl. Heating oil for February delivery increased 4.17¢ to $1.51/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) advanced 6.48¢ to $1.15/gal.
Natural gas for the same month dropped 38.8¢ to $5.18/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 1.5¢ to $5.62/MMbtu.
Despite colder than normal weather in the northeast, the February gas contract is likely to drop below $5/Mcf. "another signal that markets are oversupplied by 3-5 bcfd," said analysts with Pritchard Capital Partners LLC, New Orleans. "The EIA's short-term forecast that electricity demand will contract 0.5% in 2009 didn't help markets. EIA expects the Henry Hub spot price to average $5.78/Mcf in 2009 and $6.63/Mcf in 2010," they said. In its latest forecast, EIA projected a 1% decline in US gas demand this year, including a 3% drop in industrial demand. It expects gas demand to increase 0.7% in 2010. US gas production is expected to increase 0.7% this year and then decline 0.9% in 2010.
In London, the February IPE contract for North Sea Brent crude increased $1.92 to $44.83/bbl. The February gas oil contract gained $24 to $477/tonne.
The average price for OPEC's basket of 12 reference crudes lost 24¢ to $40/bbl Jan. 13.
Contact Sam Fletcher at [email protected].
