Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 9 -- The price of the front-month crude contract fell Dec. 8 for the fifth consecutive session on the New York market, hammered by a stronger dollar, while the price for natural gas continued to rise with colder weather raising demand through most of the US.
In Houston, analysts at Raymond James & Associates Inc. reported, “With a new short-term outlook out yesterday, the Energy Information Administration now expects $76/bbl crude [on average] this winter (October-March) and also slightly lowered its forecasts for 2010 global oil demand.” They noted below-normal temperature forecasts for the Midwest, Northeast, and Mid-Atlantic are spurring gas prices.
US inventories
EIA reported Dec. 9 commercial US inventories of benchmark crude fell 3.8 million bbl to 336.1 million bbl in the week ended Dec. 4, compared with the consensus among Wall Street analysts for a 500,000 bbl increase. Gasoline stocks increased 2.2 million bbl to 216.3 million bbl in the same period, outstripping Wall Street expectations of a 1.6 million bbl gain. Distillate fuel inventories were up 1.6 million bbl to 167.3 million bbl, counter to analysts’ predictions of a 400,000 bbl decline.
Crude imports into the US dropped 264,000 b/d to 8.1 million b/d during the same week. In the 4 weeks through Dec. 4, imports averaged 8.5 million b/d, down 1.4 million b/d from the same period in 2008.
Input of crude into US refineries increased by 77,000 b/d to 13.9 million b/d last week with units operating at 81.1% of capacity. Gasoline production increased to 9.2 million b/d. Distillate fuel production increased to 4 million b/d, EIA said.
Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said, “Refined product inventories (gasoline plus distillate plus jet fuel) jumped 4.5 million bbl (1.1%) last week, according to the EIA, due to higher refinery production and reduced demand. This was the largest weekly increase since September, and we expect inventories to continue rising into yearend, keeping downward pressure on refining margins. We continue to expect very weak fourth quarter earnings for the refiners.”
Rousseau added: “EIA regional data showed rising East Coast inventories despite low production levels (utilization rate equaled 61%), signaling demand is weak since imports into the region declined in total. In the Rocky Mountains, utilization rates dropped 5% [from the previous week], which could reduce production and inventory levels in the coming weeks and potentially increase refining margins in the region.”
The American Petroleum Institute earlier reported a drop of 5.8 million bbl to 331.5 million bbl in US crude inventories in the week ended Dec. 4, with gasoline down 753,000 bbl to 214.9 million bbl and distillate fuel up 1 million bbl to 169 million bbl, and refineries operating at 81.4% of capacity.
Meanwhile, at the United Nations' Copenhagen climate summit “security is apparently so tight that it took two full days before the member states stabbed each other in the back,” said Raymond James analysts. “That, at least, is how developing countries perceive the draft text of the agreement, leaked yesterday by a group of key negotiators,” they reported. “In a nutshell, the draft is more favorable to industrialized countries in several respects. It would require developing countries to agree to binding emissions cuts, which they adamantly reject. Also, it would give more power over climate-related development aid to the World Bank (which is dominated by the West) as opposed to the UN.”
There is “no way” China and India will sign such an agreement, “which means the final text—assuming there will even be one—will have to look very different,” the analysts said.
Raymond James also noted the meeting of representatives of 11 gas-producing nations in Qatar “in an attempt to discover how to relink gas prices to oil prices, amidst an oversupply of natural gas. Natural gas prices in the UK, Europe's largest consumer, have dropped 47% this year, while Brent crude oil has gained 67%. The group, informally known as ‘Gas OPEC,’ controls more than 35% of the world's gas supply and is working together to find the causes that have led to the disconnect between oil and gas prices.”
The International Energy Agency in Paris earlier warned of an acute glut of natural gas worldwide over the next several years and predicted supply would outpace demand growth of 2.5% until 2015. “Taking this into account, exporters realize that there is not much that can be done to support prices in the near term but are hoping that more European utilities will be able to restructure their long-term oil contracts so that they can purchase more lower-cost gas contracts now,” Raymond James analysts said.
Energy prices
The January contract for benchmark US light, sweet crude fell $1.31 to $72.62/bbl Dec. 8 on the New York Mercantile Exchange. The February contract dropped $1.29 to $74.62/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.31 to $72.62/bbl. Heating oil for December delivery lost 1.88¢ to $1.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.6¢ to $1.92/gal.
The January contract for natural gas climbed 14.3¢ to $5.11/MMbtu on NYMEX. On the spot market, gas at Henry Hub, La., jumped 19.5¢ to $5.10/MMbtu.
In London, the January IPE contract for North Sea Brent lost $1.24 to $75.19/bbl. Gas oil for December dropped $7.25 to $602/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 96¢ to $74.80/bbl on Dec. 8.
Contact Sam Fletcher at [email protected].
Rystad Energy.
