Market watch: Energy futures prices rise ahead of bullish US inventory report

By OGJ editors

HOUSTON, July 10 -- Rumors of a refinery closing caused US energy futures prices to inch up Tuesday ahead of a surprisingly bullish report of reduced US inventories of both oil and gasoline.

Most traders expected a drawdown of gasoline stocks over the July 4th holiday weekend but assumed crude inventories would increase, analysts said. Instead, the American Petroleum Institute late Tuesday reported US crude stocks fell by 6.1 million bbl to 316.1 million bbl last week, while gasoline stocks dropped by 2.4 million bbl to 214 million bbl. US distillate stocks increased by 3.2 million bbl to more than 130 million bbl.

"With larger than expected draws in crude and gasoline inventories, this week's API report should keep oil prices well supported," said Matthew Warburton at UBS Warburg LLC, New York, in a weekly report Wednesday.

"However, as these stock declines reflect a marked reduction in imports—potentially the result of diminished tanker offloading during the US holiday period—we expect the market to remain cautious near-term. A sharp recovery in imports next week is quite possible," he said.

Warburton claimed last week's reduction of gasoline inventories was "driven by the surprising abatement in gasoline (and) blendstock imports, following the record import levels of 1.1-1.2 million b/d seen during the later portion of June."

API reported imports of petroleum products declined by 625,000 b/d to a little more than 2 million b/d, while gasoline production by US refiners increased by 50,000 b/d to 8.7 million b/d. US oil imports fell by 1.3 million b/d to 8.3 million b/d last week—the lowest weekly level since March, Warburton said.

He said the 4-week average demand for US gasoline "remained strong" at 9.3 million b/d, reflecting lower retail pump prices than a year ago, "and more consumers electing to drive vs. air travel."

API reported US stocks of jet kerosine increased by 830,000 bbl to 40.6 million bbl last week. "Distillate inventories have nearly reached seasonal highs; demand for jet fuel remains depressed; and the recent drop in North American natural gas prices will only retard residual oil demand," said Warburton.

Rumors late Tuesday of the possible shutdown of a New Jersey refinery prompted a jump of 0.82¢ to 76.96¢/gal for the August contract for unleaded gasoline and helped boost all other energy futures prices on the New York Mercantile Exchange.

Analysts said it triggered a 20¢-turnaround in NYMEX oil trading, so that the August and September contracts for benchmark US light, sweet crudes closed up 2¢ each at $26.09/bbl and $26.10/bbl, respectively.

The August heating oil position advanced 0.25¢ to 67.05¢/gal on NYMEX. Natural gas for the same month gained 5.2¢ to $2.99/Mcf—not "a very impressive bounce considering the large decline" of 20.3¢ on Monday, said analysts at Enerfax Daily. Only the turnaround in the crude market kept gas prices from falling lower, they said.

"With no hurricanes on the horizon and temperatures only moderate over most of the nation, (gas) prices will continue to feel the pressure until fundamentals return," Enerfax Daily observed.

In London, North Sea Brent oil futures prices firmed above $25/bbl in a day of quite trading on the International Petroleum Exchange. The August Brent contract rose 9¢ to $25.17/bbl. The August natural gas contract increased nearly as much, 8.7¢, to the equivalent of $2.28/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes lost 10¢ to $24.52/bbl Tuesday.

In Dubai, Mahamed al-Asoomi, economic advisor to the chief executive officer of Bahrain's economic development board, warned that other negative economic factors are undermining efforts by OPEC members to boost income through higher oil prices.

While oil prices have remained relatively high, he said, stock prices have dropped sharply in international markets where most OPEC members own shares in many top name companies. Also, he said, strict supervision of Arab and Muslim investments in the West since the Sept. 11 terrorist attacks in New York and Washington, DC, has limited their flexibility and prompted some Persian Gulf states to liquidate holdings.

Meanwhile, interest rates on financial deposits have dropped to the lowest level in 40 years and do not cover inflation levels in global markets. The result, said Al-Asoomi, is a loss in the purchasing power of those deposits.

Moreover, he said, the US dollar in the last few months has lost about 10% of its value against other major currencies, particularly the euro which has strengthen with the recovery of European economies in general and Germany in particular. Because oil is priced in US dollars and OPEC has reduced production to boost that price, Al-Asoomi said, losses among the oil-exporting countries will double to $15-20 million this year, adversely affecting the economies of OPEC countries, especially the major states.