MARKET WATCHEnergy prices fall as US crude stocks increase

April 6, 2005
Energy prices continued to decline Apr. 5 with the sell off of gasoline futures contracts amid expectations of a continued build in US inventories of crude.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 6 -- Energy prices continued to decline Apr. 5 with the sell off of gasoline futures contracts amid expectations of a continued build in US inventories of crude.

The Energy Information Administration reported Apr. 6 that commercial US crude inventories increased by 2.4 million bbl to 317.1 million bbl during the week ended Apr. 1. Over the last 8 weeks, US crude stocks have increased by a total 22.8 million bbl to near the upper end of the average range for this time of year, EIA said.

It reported US gasoline stocks fell by 2.1 million bbl to 212.3 million bbl last week, while distillate fuel inventories increased by 700,000 bbl to 104.1 million bbl, with diesel fuel accounting for all of the addition.

US imports of crude averaged 9.9 million b/d last week, down by 678,000 b/d from the previous week. Crude input into US refineries increased by 352,000 b/d to more than 15.5 million b/d in the same period, with refineries operating at 93.7% of capacity. Gasoline production increased substantially to more than 8.6 million b/d, and distillate fuel production also was up, to more than 4.1 million b/d, EIA said.

"Despite US crude inventories at a 32-month high, the concern with regard to unprecedented oil price momentum remains that global demand growth will continue to outpace supply growth," said Robert S. Morris, Banc of America Securities, New
York. "With the summer driving season now just around the corner, the focus has turned to gasoline demand and US gasoline inventories, which, although still comfortably above normal, consistently dropped more than anticipated throughout March in the face of continued strong demand, which may have now reached the installed refining capacity in the US."

He said, "Although the fundamentals still appear to be 'stretched' at the moment with regard to current oil price levels, we believe consensus estimates for crude oil and natural gas prices will continue to rise."

Energy prices
The average price for benchmark US light, sweet crudes lost 97¢ to $56.04/bbl Apr. 5 on the New York Mercantile Exchange, while the June contract fell by $1 to $57.10/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 96¢ to $56.05/bbl. Gasoline for May delivery dropped 3.36¢ to $1.69/gal on NYMEX. Heating oil for the same month lost 2.11¢ to $1.62/gal.

The May natural gas contract slipped by 2.2¢ to $7.57/MMbtu on NYMEX, "pressured by weaker crude oil prices and the arrival of milder weather in the Northeast and Midwest that helped soften the cash [spot] market," said analysts at Enerfax Daily.

They also noted, "A cool March and strong oil market have prompted many natural gas analysts to raise their price expectations for 2005, with most now expecting prices to eclipse last year's record high average. A survey of 22 industry experts showed most expected prices at Henry Hub[, La.,] to average about $6.37/MMbtu, up from the previous poll estimate of $5.98/MMbtu, and about 6% above 2004's record high average of $6.03/MMbtu."

So far, Henry Hub spot market prices have averaged $6.34/MMbtu, up 12% from an average $5.67/MMbtu in the first quarter of 2004, said Enerfax analysts.

"Sagging [US] natural gas production has been the primary driver for record prices over the last 2 years, but a stronger economy and increased use of natural gas to generate power have also helped keep the supply-demand balance tight," they said. "The EIA estimates that natural gas production fell about 2% last year and will only increase slightly this year. At the same time, demand is expected to rise by about 2% in 2005 after remaining flat last year due to an unexpectedly mild summer and autumn."

In London, the May contract for North Sea Brent crude lost 79¢ to $55.44/bbl Apr. 5 on the International Petroleum Exchange.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was down by 66¢ to $52.27/bbl.

Contact Sam Fletcher at [email protected]