MARKET WATCHGasoline futures prices retreat, oil prices advance

Sam Fletcher
Senior Writer

HOUSTON, Aug. 27 -- The September gasoline futures price fell from a 5 ½-month high Tuesday as a result of a weaker cash market and an announcement that the New York Mercantile Exchange would raise margins—the deposits required for trading at the exchange—at the close of that session.

It marked the second margin increase for that contract since an Aug. 21 price spike (OGJ Online, Aug. 22, 2003). That made the September contract too expensive for small speculators to hold in the few remaining days until its Friday expiration, analysts said.

Unleaded gasoline for September delivery fell by 3.62¢ to $1.08/gal, ahead of an expected increase in demand over the coming Labor Day weekend. Prices usually are more volatile during the final days of trade for a contract. Some participants expect prices to continue to fall in profit taking from the recent run up.

Oil prices increase
Crude futures prices continued to increase, however, emphasizing the current disconnection between oil and gasoline in the futures market. The October contract for benchmark US light, sweet crudes closed at $31.95/bbl Tuesday, up 39¢ for the day after trading as high as $32.05/bbl during that NYMEX session. The November position advanced by 18¢ to $31.54/bbl. On the US spot crude market, benchmark West Texas Intermediate crude gained 55¢ to $31.98 FOB Tuesday.

Heating oil for September delivery gained 0.44¢ to 82.84¢/gal Tuesday on NYMEX.

The crude futures market was affected Tuesday by expectations of another bullish report on US oil inventories. The US Energy Information Administration reported early Wednesday that commercial US crude stocks declined by 200,000 bbl to 278.6 million bbl during the week ended Aug. 22. US oil stocks are now 20.2 million bbl below year-ago levels, officials said.

US gasoline stocks last week fell by 5.7 million bbl to 191.2 million bbl, the lowest level since Nov. 17, 2000. Inventories of distillate fuel grew by 700,000 bbl to 121.8 million bbl, with diesel fuel accounting for most of that increase. However, EIA officials said distillate stocks are still near the bottom of the normal range for this time of year.

Banc of America Securities LLC on Tuesday raised its price forecasts for WTI on the US spot market to $30.25/bbl for 2003, up from $28.25/bbl previously; and to $24.75/bbl from $23.75/bbl for 2004.

Tyler Dann, an analyst in the firm's Houston office, sees oil supplies tightening "through the remainder of 2003 and modestly in 2004" as a result of the slow ramp-up of Iraq's oil production, continued sabotage of a pipeline from Iraq's northern oil fields to an export terminal in Turkey, persistent civil unrest in Nigeria that still threatens to shut in oil production, and revived concerns that oil fields in Venezuela suffered permanent damage when shut in by the general strike early this year.

US oil imports
US imports of crude increased by 378,000 b/d to more than 10.2 million b/d during the week ended Aug 22, EIA officials reported Wednesday. During the last 4 weeks, they said, US oil imports have averaged nearly 10.1 million b/d, which is 641,000 b/d more than during the same period in 2002.

Among last week's imports were apparently some Iraqi crude, marking the second consecutive week that the US has imported oil from Iraq, officials said.

According to other industry sources, Iraq's oil exports have recently increased to an average 615,000 b/d in August, so far. That's just below Baghdad's target of 650,000 b/d.

Natural gas prices
The September natural gas contract dropped 4.5¢ to $5.04/Mcf, despite an afternoon rally Tuesday on NYMEX. The market opened low and quickly fell lower, bottoming out at $4.94/Mcf at mid-morning before turning around and climbing during the rest of that session, said analysts Wednesday at Enerfax Daily.

"The weather looks milder going forward, so locals (gas distributors) tried to beat the market down early, but cash (gas market prices) were higher than NYMEX, and crude oil futures (prices) popped back higher, causing the turnaround," they said. The September natural gas contract expires Wednesday.

Meanwhile, analysts said, "The peak of the Atlantic hurricane season is in September, and traders are watching for any storm activity that could impact offshore Gulf of Mexico production facilities."

Banc of America analysts lowered their price projections for the natural gas composite spot market to $5.45/Mcf for 2003, from $5.60/Mcf earlier. Through the latest quarter, they said, the composite spot market natural gas price has averaged $4.87/Mcf.

Other prices
In London, the October contract for North Sea Brent oil increased by 7¢ to $29.77/bbl on the International Petroleum Exchange. The September natural gas contract fell by 5.9¢ to the equivalent of $2.25/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes inched up by 3¢ to $29.04/bbl Tuesday.

Contact Sam Fletcher at [email protected]