By OGJ editors
HOUSTON, June 26 -- Energy futures prices slumped Tuesday, as traders assumed that the Organization of Petroleum Exporting Countries would not significantly alter its current production quota at its Wednesday meeting in Vienna.
During recent weeks, oil ministers of many of the OPEC member nations strongly indicated that they prefer to maintain current production levels prior to their next meeting in September, even though some non-OPEC producers have said they plan to increase their output.
The August contract for benchmark US crudes slipped 15¢ to $26.32/bbl Tuesday on the New York Mercantile Exchange, while the September contract retreated 19¢ to $26.08/bbl. However, both contracts advanced in after-hours electronic trading to $26.40/bbl and $26.17/bbl, respectively, following release of an American Petroleum Institute report late Tuesday of an unexpected large drop of 6.3 million bbl in US crude stocks to 317.8 million bbl last week.
API also reported that total US distillate inventories were down by 1.2 million bbl to 127.9 million bbl, while US gasoline stocks increased by 1.5 million bbl to 217.7 million bbl.
The decrease in US oil inventories occurred "despite a marked increase in crude imports to 9.5 million b/d and modestly lower demand from domestic refiners," said Matthew Warburton at UBS Warburg LLC, New York, in a report issued early Wednesday. That drop "more than offset the unexplained build" in US oil inventories that API reported the previous week, he said.
"Crude inventories in the critical (Petroleum Administration for Defense District) PADD 2 region (encompassing the upper Midwest states) fell again this week to 61.4 million bbl, reflecting healthy refinery utilization (of 98.7%) and domestic crude imports (into that area) trending below last year's levels. Consequently, we expect (benchmark US crude) futures to become increasingly backwardated, with additional crude imports drawn into the US," said Warburton.
Average US refinery utilization dipped to 93.7% last week, down from 94.2% in both the previous week and the same period a year ago. That's 3% less than the summertime peaks in 2000 and 2001, "reflecting lackluster margins and excess inventories," Warburton said. "However, refiners and OPEC should be encouraged by the 4-week average demand for main products, which continued to trend upward this week, reaching 15.2 million b/d. Moreover, the implied demand for both jet fuel and distillate both moved into positive territory (in year-over-year comparisons) for the first time since August."
Meanwhile, he said "robust" US gasoline demand of 9.1 million b/d attracted an increase of 410,000 b/d in US imports of gasoline and blendstock that hiked gasoline inventories in all five PADDs. "However, with gasoline stocks and demand cover more than sufficient, we expect overall refining margins to remain lackluster," Warburton reported.
Heating oil for July delivery dropped 0.75¢ to 65.89¢/gal during the regular NYMEX trading session Tuesday. Unleaded gasoline for the same month lost 0.45¢ to 77.32¢/gal. However, the July natural gas contract gained 1.9¢ to $3.45/Mcf.
In London, futures prices for North Sea Brent oil retreated in afternoon trading on the International Petroleum Exchange, following President George W. Bush's speech promising US aid to Palestinians if they replace Yasser Arafat with new leadership.
The August Brent contract slid 7¢ to $25.20/bbl. However, the July natural gas contract gained 2.8¢ to the equivalent of $1.87/Mcf on the IPE.
The average price for OPEC's basket of seven benchmark crudes increased by 5¢ to $24.61/bbl Tuesday.