Market watch: Inventory declines rally energy markets

By OGJ editors
HOUSTON, June 13

Energy futures markets rallied Wednesday with reports of unexpected large draw down of US crude and gasoline inventories, indicating that markets are fundamentally stronger than previously perceived.

European and Asian markets also were boosted by reports that Norwegian oil workers threatened to strike Monday if they cannot reach a contract agreement with Statoil ASA and ExxonMobil Corp. over the weekend. Such a strike could cut Norway's oil production by 5%, analysts said.

The US Department of Energy said early Wednesday that US crude stocks dropped by 1.4 million bbl last week. The American Petroleum Institute late Tuesday reported a much larger decline of 2.62 million bbl. Analysts attributed that decline to a cutback of more than 1 million b/d in US oil imports and increased refinery production (OGJ Online, June 12, 2002).

DOE officials reported US gasoline stocks fell by 1.5 million bbl, a larger figure than the 977,000 bbl decline reported by API. That loss was partially compensated by a decline in gasoline demand over the same period, analysts said.

Both DOE and API reported increases in distillate stocks of 1.7 million bbl and 1.04 million bbl, respectively.

The July contract for benchmark US sweet, light crudes jumped by 52¢ to $24.64/bbl Wednesday on the New York Mercantile Exchange, while the August contract gained 44¢ to $24.87/bbl. Both continued increasing in after-hours electronic trading to $24.80/bbl and $25.03/bbl, respectively.

Unleaded gasoline for July delivery also rose 1.81¢ to 75.1¢/gal on NYMEX. Home heating oil for the same month was up 1.21¢ to 63.07¢/gal. However, the July natural gas contract continued to slip, down 7.5¢ to $3.06/Mcf.

In London, the July contract for North Sea Brent oil increased by 21¢ to $23.51/bbl Wednesday on the International Petroleum Exchange as brokers seized upon the Norwegian strike threat as a bullish signal to continue the rally touched off by the API report of US inventory declines. That contract was trading at $23.83/bbl early Thursday, seeking momentum to break through the $24/bbl level, brokers said.

The Singapore and Japanese markets also reported energy price increases in overnight trading. However, the July natural gas contract dipped 0.7¢ to the equivalent of $1.80/Mcf on IPE.

Meanwhile, Rilwanu Lukman, conference president for the Organization of Petroleum Exporting Countries, said Thursday that OPEC ministers are closely monitoring market developments ahead of their scheduled June 26 meeting in Vienna.

Current oil price levels seem "reasonable," said Lukman, who is also adviser on petroleum and energy issues to the president of Nigeria. OPEC members and other major oil producers outside that organization still need to restrain production to maintain market stability, he said.

"But anything could happen to change the views of the ministers. It is still 2 weeks (until their meeting)," Lukman said.

The average price for OPEC's basket of seven benchmark crudes gained 18¢ to $22.64/bbl Wednesday.