MARKET WATCHCommodity prices dip ahead of build in US crude stocks

April 27, 2005
Energy futures prices continued to decline Apr. 26 in expectation of bigger builds in US crude inventories.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 27 -- Energy futures prices continued to decline Apr. 26 in expectation of bigger builds in US crude inventories.

Indeed, the Energy Information Administration said Apr. 27 that commercial US stocks of crude jumped by 5.5 million bbl to 324.4 million bbl during the week ended Apr. 22. However, US gasoline inventories slipped by 300,000 bbl to 211.3 million bbl, while distillate fuel stocks fell by 1.4 million bbl to 102.6 million bbl.

Imports of crude into the US increased by more than 1.1 million b/d to 10.9 million b/d during the same period, the third highest weekly average ever, said EIA. Nonetheless, the input of crude into US refineries declined by 83,000 b/d to 15.3 million b/d, with refineries operating at 91.3% of capacity. Still, EIA said, "Gasoline production rose significantly last week," while distillate fuel production declined.

"There are two main fundamentals that we do not believe are yet fully [reflected] in the market," said Paul Horsnell, Barclays Capital Inc., London. "First, we expect that Asian demand will surprise consensus on the upside again, and in particular that the softer data out of China earlier this year was a bear trap."

The level of implied Chinese oil demand rose by a "hardly sluggish" 8% from year-ago during the first quarter of this year, "and we expect the pace to increase further as the year progresses. The slackness in Asian demand in general earlier this year, reinforced by a period of significant inventory rundowns in China, has already given way to a sharp upwards swing," he reported.

"The other aspect that we do not think is fully priced in yet is the scale of the weakness of non-OPEC [Organization of Petroleum Exporting Countries] supply. We are now expecting no growth at all in non-OPEC output this year outside of the former Soviet Union and total growth of just 510,000 b/d, the weakest this decade," said Horsnell.

Energy prices
The June contract for benchmark US light, sweet crudes lost 37¢ to $54.20/bbl Apr. 26 on the New York Mercantile Exchange. The July contract was down by 26¢ to $55.65/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., gained 63¢ to $54.21/bbl. Gasoline for May delivery dropped 2.56¢ to $1.63/gal on NYMEX, while heating oil for the same month declined by 1.02¢ to $1.51/gal.

The May natural gas contract lost 3.3¢ to $7.12/MMbtu on NYMEX, "undermined by softer cash [spot market] prices and a slide in crude oil prices despite fairly cool weather forecast for this week that should lift spot demand," said analysts at Enerfax Daily.

In London, the June contract for North Sea Brent crude was down by 26¢ to $54.14 bbl.

The average price for OPEC's basket of seven benchmark crudes lost 27¢ to $49.90/bbl on Apr. 26.

Contact Sam Fletcher at [email protected]