Sam Fletcher
Senior Writer
HOUSTON, June 6 -- An unseasonal rally in heating oil helped jack up crude futures prices above $55/bbl June 3 in New York markets, as traders shrugged off earlier reports of builds in US petroleum inventories and further strengthening of the US dollar.
Traders reported strong demand for distillate fuels—heating oil, diesel, and jet fuel—in the US, Europe, China and other parts of Asia. US demand for distillate is about 5% greater than last year ago, with US demand growth three times greater than demand growth for gasoline, said government officials.
"We remain convinced that the oil market will remain tight over the next several years and beyond," said analysts at Raymond James & Associates Inc., St. Petersburg, Fla., in a June 6 report.
"US petroleum inventories have increased year-to-date, and we expect further builds—albeit at a reduced pace—over the next 4-6 weeks. However, the data clearly shows that (1) the recent builds have been manifested almost exclusively in the US; (2) inventories remain below 10-year highs; and (3) inventories are below average on a relative (days of supply) basis," said Raymond James analysts.
Moreover, inventory builds "are necessary if US oil demand is to be met in the second half of 2005 and into 2006," analysts said. "As domestic demand ramps up over the next 6 months, the recent builds will be worked off."
Energy prices
The July contract for benchmark US light, sweet crudes jumped by $1.40 to $55.03/bbl June 3 on the New York Mercantile Exchange, while the August position advanced by $1.36 to $55.98/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $1.40 to $55.04/bbl. Heating oil for July delivery gained 5.73¢ to $1.60/gal on NYMEX. Gasoline for the same month increased by 4.17¢ to $1.56/gal
The July natural gas contract escalated by 6.1¢ to $6.88/MMbtu June 3 on NYMEX, "buoyed by bullish technicals [predetermined trading orders], slightly warmer weather forecasts for this week, and strong gains in the oil complex," said analysts June 6 at Enerfax Daily.
"Technical buying and [investment] fund short-covering [of exposed sales positions] broke resistance last week and drove the prices higher. But despite recent strength in crude oil and slightly warmer forecasts for this week, the lack of extreme heat in most areas could limit further gains, particularly with [US natural gas] inventories still running at a hefty surplus to last year," they said.
In London, the July contract for North Sea Brent crude gained $1.77 to $54.17/bbl on the International Petroleum Exchange.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 49¢ to $50.72/bbl June 3. So far this year, OPEC's basket price has averaged $45.74/bbl.
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