Market watch: Cautious trading produces little change in oil futures prices

By OGJ editors

HOUSTON, Sept. 11 -- Futures prices for petroleum products advanced, with little change in oil prices, in cautious trading Tuesday ahead of the first anniversary of the Sept. 11, 2001, terrorist attacks on Washington, DC, and New York City.

"The crude oil futures market surged early (Tuesday) on concerns of Navy alerts concerning the safety of US oil tankers and refineries. (Federal) authorities raised the level of alertness to a 'condition orange,' the second highest level of alert in the system," market analysts at Enerfax Daily reported Wednesday.

Despite all of that, the October contract for benchmark US light, sweet crudes remained unchanged at $29.37/bbl, while the November position inched up 8¢ to $29.89/bbl on the New York Mercantile Exchange. Unleaded gasoline for October delivery gained 0.94¢ to 79.94¢/gal, and heating oil for the same month increased 0.65¢ to 79.27¢/gal.

The October natural gas contract slipped 4.3¢ to $3.36/Mcf on NYMEX. "Trade and local buying pushed the market to a high at $3.425(/Mcf) early (Tuesday), but later trade selling dropped it below $3.40(/Mcf) for the rest of the non-eventful day," Enerfax Daily analysts reported.

Futures market positions Tuesday "were vacated...that normally wouldn't be vacated" ahead of the abbreviated NYMEX trading session scheduled Wednesday. "And many marketers plan to take the day off," the analysts reported.

Following the close of trade Tuesday, the American Petroleum Institute released what some analysts described as a "mildly bearish" report of US inventories that showed US oil stocks declined by 470,000 bbl last week, less than half of what most traders had expected.

API said US gasoline inventories rose by 66,000 bbl last week, while distillate stocks jumped by 2.7 million bbl. Traders generally had expected declines in both categories.
Nevertheless, Matthew Warburton at UBS Warburg LLC, New York, reported Wednesday, "Absolute inventory levels remain near 18-month lows. More importantly, market attention will remain focused on President (George W.) Bush's address to the UN tomorrow to glean any indication of likely timing of military action toward Iraq."

Still, he said, "With total crude and product inventories increasing by 3.6 million bbl week-over-week and uncertainty in demand recovery in every refined product except gasoline, there appears little near-term prospect for a recovery in product prices and hence refining margins."

Warburton said, "Crude inventories continue to tighten in the critical Petroleum Administration for Defense District 2 region (encompassing the upper Midwest states) and are now at levels not seen since February 2001. Overall crude inventories decreased by 500,000 bbl despite refinery runs essentially unchanged and imports declining by 1.4 million b/d to 8 million b/d, their lowest level since March.

"Despite increased short haul imports from the Caribbean, with Iraqi exports of only 371,000 b/d last week and the forthcoming fall refinery maintenance season, we expect crude imports to remain subdued in the coming weeks."

He said, "Ongoing high levels of implied gasoline demand continued to neutralize the impact of record gasoline imports. PADD 1 (along the US East Coast) import levels remain approximately double the 5-year average for this time of the year."

In London, oil futures prices for North Sea Brent were little changed Tuesday, remaining steady around $28.50/bbl on the International Petroleum Exchange as brokers sold some of their stale long positions to take profits. The October Brent contract closed at $28.58/bbl, up 9¢ for the day after trading in the range of $28.52-29.02/bbl.

The October natural gas contract gained 2.9¢ to the equivalent of $2.72/Mcf on the IPE.
The average price of the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was up 2¢ to $27.61/bbl Tuesday.