Sam Fletcher
OGJ Senior Writer
HOUSTON, Oct. 16 -- Energy prices continued climbing Oct. 15 with crude coming within pennies of $78/bbl on the New York market after the government reported a bigger-than-expected drop in US gasoline inventories.
The Energy Information Administration said commercial US crude inventories increased 400,000 bbl to 337.8 million bbl in the week ended Oct. 9, but gasoline stocks dropped 5.2 million bbl to 209.2 million bbl. Distillate fuel inventories declined 1.1 million bbl to 170.7 million bbl. US Imports of crude were down 367,000 b/d to 8.7 million b/d. Input of crude into US refineries fell 510,000 b/d to 14.1 million b/d with units operating at 80.9% of capacity—the lowest operations level since April (OGJ Online, Oct. 15, 2009).
EIA also reported injection of 58 bcf of natural gas into US underground storage in the same period, boosting the working gas in storage above 3.7 tcf—approaching total capacity of 3.9 tcf. Yet the price of gas rose on the New York market as traders focused instead on forecasts of colder weather on the Eastern Seaboard this winter.
“The inventory data was positive enough to propel crude through the $75/bbl resistance level, and if the dollar does not strengthen, crude will probably test $80 within the next week,” said analysts at Pritchard Capital Partners LLC in New Orleans.
Nevertheless, Olivier Jakob at Petromatrix, Zug, Switzerland, expressed the outlook of many market observers when he said: “Based on [supply and demand] fundamentals, we have no confidence at all in the current oil rally.” Moreover, a continued surge in crude prices will not solve current imbalances in supply and demand but will on the contrary aggravate the imbalances, he said.
Jakob said, “Crude oil above $80/bbl and in a contango structure ensures that all production projects in non-OPEC [producing nations] will be viable and can be hedged. Hence on the supply side, price is already performing its function [as a solver of supply and demand imbalances], and a higher price will not be needed by non-OPEC producers. On the other hand, it will probably force more leakage from OPEC, but there is no known imbalance in crude supply, there is plenty of spare capacity in OPEC; hence the risk now is that higher prices will create imbalance on the supply side (oversupply) rather than solve any.”
On the demand side, he said, “The current main imbalance in the world is the distillate glut and its growing levels of floating storage. Asia is exporting distillates to the European floating stocks; the US is running to export distillates; while demand has still not fully recovered to draw those stocks down. The solver to that situation is lower refinery runs and higher demand. For that the price of distillates has to come down to force more refineries into shut down and to stimulate demand. The process of lower refinery runs has begun in the Atlantic Basin but needs to continue as the stocks have not yet been impacted and demand is still to be seen. The weak dollar is not per se a demand stimulator as oil prices are climbing more rapidly than the dollar is falling.”
In recent months as the dollar weakened, oil prices seemed stuck in a range of $65-75/bbl before busting through the $75/bbl ceiling this week. “It now looks like the dollar is driving oil prices once again. The prospect of fresh lows in the US dollar will exacerbate this trend,” said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.
He said, “At the start of January 2003, one euro cost roughly one US dollar and oil was selling for about $33/bbl in both currencies. Politicians and the press have been looking to find somebody to blame for the oil price rise to nearly $150/bbl in July 2008, with much of the attention focused on ‘oil speculators.’ But in euro exchange equivalent terms, oil prices never got over $95/bbl at the peak and are just a bit over $50/bbl equivalent now when it takes $1.48 to buy a euro.”
Michael Lewis at Deutsche Bank in London said, “Not only does the US dollar tend to weaken in December, but, since 1999, this trend has become even more powerful.” He said, “A further rally in commodity prices will also be based on an improvement in the outlook for global growth and specifically US growth. We find that the significant improvement in US earnings since the beginning of the year will translate into stronger growth and further gains in the Standard & Poor's 500 Stock Index.”
Energy prices
The November contract for benchmark US light, sweet crudes traded as high as $77.97/bbl Oct. 15 before closing at $77.58/bbl, up $2.40 for the day on the New York Mercantile Exchange. The December contract climbed $2.48 to $78.08/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.40 to $77.58/bbl, in sync with the front-month futures contract. Heating oil for November increased 7.54¢ to $2.02/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month escalated 8.74¢ to $1.94/gal.
The November natural gas contract regained 4.6¢ to $4.48/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 5¢ to $3.86/MMbtu.
In London, the November IPE contract for North Sea Brent crude increased $1.35 to $74.45/bbl. Gas oil for November gained $10.25 to $616/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up $1.24 to $73.20/bbl Oct. 15.
Contact Sam Fletcher at [email protected].
