MARKET WATCHIncreased US inventories deflate energy prices

Oct. 27, 2005
Energy prices fell Oct. 26 on reports of builds in US crude and gasoline inventories, but markets didn't relinquish all of the gains from the previous trading session.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 27 -- Energy prices fell Oct. 26 on reports of builds in US crude and gasoline inventories, but markets didn't relinquish all of the gains from the previous trading session.

Commercial US crude inventories jumped by 4.4 million bbl to 316.4 million bbl in the week ended Oct. 21, the US Energy Information Administration reported. Gasoline stocks inched up by 200,000 bbl to 195.9 million bbl. US distillate fuel inventories fell by 1.6 million bbl to 121.1 million bbl in the same period (OGJ Online, Oct. 26, 2005).

However, statistics also showed a 900,000 bbl drawdown in total product inventories resulting from a decline in imports and strengthening demand, said analysts at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va. "Gasoline demand has become a key issue over the past few weeks (with September data showing a 2.3% year-over-year decline). However, over the past 4 weeks, gasoline consumption has grown 1.1% above year-ago levels, suggesting that the situation is not nearly as bad as some may have feared," they said.

"Total product inventories are currently 3% (10 million bbl) below the historical 5-year average on an absolute basis and at their lowest levels on a demand-adjusted basis. With 800,000 b/d of US refining capacity still offline, imports expected to decline, and seasonal demand expected to increase throughout the fourth quarter, refining margins should stay high through at least 2006," the analysts said.

EIA reported Oct. 27 the injection of 77 bcf of natural gas into US underground storage during the week ended Oct. 21. That was up from 75 bcf the prior week and 26 bcf in the same period last year and above the consensus of Wall Street analysts. With the heating season starting Nov. 1, US gas storage now stands at 3.1 tcf, down 106 bcf from a year ago but 85 bcf above the 5-year average.

The US Minerals Management Service said Oct. 26 that 17 drilling rigs and 228 production platforms remain evacuated in the Gulf of Mexico after three recent hurricanes. As a result, more than 1 million b/d of crude production and 5.6 bcfd of natural gas production are shut in. That's equivalent to 68.2% of the crude and 55.6% of the natural gas normally produced daily from the US sector of the Gulf of Mexico.

Production lost from gulf waters since Aug. 26 now totals 69.6 million bbl of crude and 353.7 bcf of gas. That's equivalent to 12.7% of the crude and 9.7% of the gas produced annually from the gulf, officials said.

Energy prices
The December contract for benchmark US sweet, light crudes seesawed between $60.60 and 62.95/bbl Oct. 26 before closing at $60.66/bbl, down $1.78 for the day on the New York Mercantile Exchange. The January contract lost $1.62 to $61.20/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., dropped $2.38 to $60.67/bbl. Gasoline for November delivery plunged by 6.93¢ to $1.58/gal on NYMEX. Heating oil for the same month retreated by 3.38¢ to $1.86/gal. The November natural gas contract lost 29.8¢ to $14.04/MMbtu, dragged down by falling crude prices despite a strong natural gas spot market, said analysts at Enerfax Daily.

In London, the December contract for North Sea Brent crude pulled back by $1.37 to $58.87/bbl on the International Petroleum Exchange. November gas oil gained $16 to $586.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by $1.12 to $54.41/bbl Oct. 26.

Contact Sam Fletcher at [email protected].