Sam Fletcher
Senior Writer
HOUSTON, May 15 -- Prices for crude and products fell May 14 following a government report of a larger-than-expected build in US distillate fuel inventories and a larger-than-expected fall in gasoline stocks.
"On a day when polar bears became a protected species, the very rare and elusive oil bear came out of hiding, driving crude prices down on the trading session," said analysts in the Houston office of Raymond James & Associates Inc. "However, with worldwide economic growth continuing to surprise on the upside, most recently with Germany announcing that it had first quarter economic growth of 1.8%—double what economists were expecting—look for the oil bears' population to remain threatened and endangered."
Natural gas prices climbed, hitting an intraday record of $11.794/MMbtu on the New York market, after Enterprise Products Partners LP said repair of its Independence Trail pipeline will not be completed before mid-June. Analysts at Pritchard Capital Partners LLC, New Orleans, said, "Traders had been anticipating a mid-May restart to as much as 900 MMcfd. When the hub went off-line on Apr. 8 due to a leak on the associated Independence Trail pipeline, the original repair estimate was 1-4 weeks. While the hub's extended outage adds to the concern of some that natural gas storage will have a hard time refilling in time for the winter heating season, other market experts are not too concerned."
The Energy Information Administration reported US gasoline inventories fell 1.7 million bbl to 210.2 million bbl in the week ended May 9, surpassing the 100,000 bbl decrease expected by Wall Street analysts. Distillate fuel increased 1.4 million bbl to 107.1 million bbl vs. a consensus of an 800,000 bbl build. US crude inventories inched up only 200,000 bbl to 325.8 million bbl, well below Wall Street's projections of a 1.9 million bbl increase (OGJ Online, May 14, 2008). Crude inventories have increased a total of 12.1 million bbl over the past 4 weeks.
The increase in distillate stocks "put a halt to the impressive rise in distillate prices that have occurred over the past 2 weeks," Pritchard Capital Partners analysts said. But distillate prices were up in overnight electronic trading, "so it looks as though the rally may be back in style," they said May 15.
The American Automobile Association reported the average US retail price for regular unleaded gasoline climbed to a record of $3.758/gal May 14, up more than 11% from a month ago. In Alaska, the average retail gasoline price statewide was $4/gal. US retail diesel prices peaked at a record average of $4.419/gal. On the West Coast, spot jet fuel lost 7¢ to $3.86/gal May 14. "Some think this product could hit $4/gal, given the strong demand for jet fuel in Asian markets. On the East Coast, New York Harbor ultralow-sulfur diesel is expected to push back into the $3.90s given the strength in overnight prices," said Pritchard Capital Partners.
Those analysts said, "Not surprisingly, high oil prices have slowed demand growth. In fact, gasoline demand so far this year is in the red compared to a year ago—but just by a fraction. Demand growth for jet fuel is off by almost 6%." Still, they said, "A report earlier in the week showed demand for oil in India rising 7% during the first quarter, led by strong distillate usage. Given the high price environment, strong demand growth overseas may continue to pressure US prices higher."
OPEC's outlook
In its latest monthly market report, the Organization of Petroleum Exporting Countries said it still sees world economic growth at 3.9% in 2008, unchanged from the previous month amid signs that the credit crisis may be easing. Forecasts for Japan were revised slightly up while those for the Euro-zone were slightly down. Its forecast for US economic growth is unchanged at 1.1%.
"In the narrow technical sense, the US is not yet in recession. Advance figures for US gross domestic product in the first quarter still indicate positive growth, albeit at a meager 0.6% yearly rate, mainly on continued strength in exports and a rise in inventories. US payrolls in April fell for the fourth month, but the loss of 20,000 jobs was much smaller than the average of 80,000/month in the first quarter of 2008," said OPEC analysts. "Overall, the better-than-expected data and signs that the Fed's easing cycle were at an end helped lift the dollar from its lows vs. the euro and yen. Inflation continued to trouble China, India, and other emerging markets and could dampen growth in the months ahead."
Oil demand in April was "very weak" within the Organization for Economic Cooperation and Development, although winter product demand improved across Europe. US oil consumption declined sharply, due to both the slowing economy and warm winter weather, and is expected to experience the usual seasonal drop in consumption in the second quarter. "This year's summer driving season is not likely to show its normal annual growth due to the anticipated weaker gasoline demand in the US," OPEC said. "North America is forecast to be flat while oil demand in other OECD regions is expected to decline due to weakening transport fuel demand in the second quarter."
The cartel lowered its forecast for non-OPEC supply growth in 2008 to 700,000 b/d, with production reductions in Mexico, Norway, UK, Denmark, Australia, New Zealand, Brazil, and Russia to be partially offset by increases in India, Syria, and Chad. Growth in OPEC NGLs and nonconventional oils now stand at 340,000 b/d in 2007 and 540,000 b/d for 2008.
In April, OPEC crude production averaged 31.7 million b/d, a decline of 393,000 b/d from the previous month due to production disruptions in Nigeria and Iraq.
Energy prices
The June contract for benchmark US light, sweet crudes dropped $1.58 to $124.22/bbl May 14 on the New York Mercantile Exchange, having seesawed "for 4 consecutive days of trading in a narrow $2/bbl range, setting the stage for a volatility breakthrough," said Olivier Jakob at Petromatrix, Zug, Switzerland. The July contract lost $1.48 to $124.11/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.57 to $124.23/bbl. The June contract for reformulated blend stock for oxygenate blending (RBOB) declined 1.96¢ to $3.18/gal on NYMEX. Heating oil for the same month dropped 8.11¢ to $3.62/gal.
The June natural gas contract gained 17.6¢ to $11.60/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 30.5¢ to $11.49/MMbtu. EIA reported the injection of 93 bcf of natural gas into US underground storage in the week ended May 9. Working gas in storage now exceeds 1.5 tcf, down 286 bcf from year-ago levels but 3 bcf above the 5-year average.
In London, the soon-to-expire June IPE contract for North Sea Brent crude lost $2.24 to $121.86/bbl. Gas oil for June deliver dropped $7.75 to $1,195.75/tonne.
The average price for OPEC's basket of 13 reference crudes inched up 2¢ to $118.78/bbl on May 14.
Contact Sam Fletcher at samf@ogjonline.com.