Market watch: Energy futures prices gain ahead of Thanksgiving holiday

Nov. 27, 2002
Energy futures prices partially rebounded Tuesday, with traders covering short positions ahead of the long Thanksgiving holiday weekend in the US.

Sam Fletcher
OGJ Senior Writer
HOUSTON, Nov. 27 -- Energy futures prices partially rebounded Tuesday, with traders covering short positions ahead of the long Thanksgiving holiday weekend in the US.

A report by the American Petroleum Institute late Tuesday that US inventories of oil and distillates declined during the week ended Nov. 22 also helped buoy energy futures prices.

Crude stocks fell marginally by 100,000 b/d as higher refinery runs, up 230,000 b/d, essentially neutralized an increase in oil imports, said Matthew Warburton, an analyst at UBS Warburg LLC, New York. "Total US imports rose 400,000 b/d to 9.3 million b/d, despite Canadian imports falling 436,000 b/d as the Lemont refinery remained off line in (Petroleum Administration for Defense District) PADD 2 (in the upper Midwestern US)," he reported Wednesday. Citgo Petroleum Corp.'s 158,650 b/d refinery in Lemont, Ill., was reported earlier to be undergoing maintenance (OGJ Online, Sept. 25, 2002). However, Citgo officials responding this month to OGJ's 2002 refining survey said their crude unit was operating at full capacity.

"Higher gasoline imports and production more than offset continuing robust demand, resulting in a total (weekly) build of 2.4 million bbl," Warburton said. "Refiners appear to be maximizing the use of greater quantities of heavier crude available from (the Organization of Petroleum Exporting Countries) and Mexico, with the commensurate higher yields of gasoline, rather than responding to more favorable economic signals via the heating crack spreads."

US distillate inventories last week fell by 3.7 million bbl "to their lowest level since April 2002, and PADD 2 levels reached a 10-year low," he reported. "The draw was concentrated in diesel, not heating oil, as refiners lowered diesel production (by 234,000 b/d) and increased heating oil production." That changeover "was understandable, given heating oil prices have become backwardated for the first time since April 2001," said Warburton. Meanwhile, he said, US imports of distillate have increased sharply to the highest level since the start of this year.

Warburton concluded, "Given the usual yearend repositioning of inventories by companies for tax purposes, the volatility of near-term API data could increase over the coming weeks, especially given the recent conclusion of the merger between Conoco (Inc.) and Phillips (Petroleum Co.) and the usual absolute inventory reduction that follows merger activity."

The January contract for benchmark US light, sweet crudes gained 29¢ to $26.40/bbl Tuesday on the New York Mercantile Exchange, while the February contract was up 22¢ to $26.27/bbl. Unleaded gasoline for December delivery increased by 0.98¢ to 72.53¢/gal. Heating oil for the same month rose 0.71¢ to 75.75¢/gal.

However, the expiring December natural gas contract lost 12.1¢ to $4.14/Mcf Tuesday on NYMEX. Forecasts of well-below-normal temperatures into the first week of December have kept that market above $4/Mcf, analysts at Enerfax Daily reported Wednesday. However, they said, conflicting weather forecasts—"sometimes cold, sometimes with moderating temperatures"—have essentially kept the market within a limited trading range, too.

In London, the January contract for North Sea Brent oil gained 18¢ to $24.85/bbl on the International Petroleum Exchange. Although oil futures prices remain below $25/bbl in that market, brokers said, they still retain "a small war premium resulting from tensions associated with the Iraq-United Nations situation." However, they said prices probably will drift lower in the absence of any new developments.

The December natural gas contract inched up 0.3¢ to the equivalent of $3.36/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes gained 2¢ to $24.81/bbl Tuesday.

Contact Sam Fletcher at [email protected]