MARKET WATCH Gasoline futures price hits 5 ½-month high
Sam Fletcher
Senior Writer
HOUSTON, Aug. 26 -- With US gasoline inventories at a 9-month low and record demand expected over the upcoming 3-day Labor Day weekend as the summer driving season closes, the September contract for unleaded gasoline jumped by 2.38¢ to a 5 ½-month high of $1.12/gal Monday on the New York Mercantile Exchange.
But unlike the Aug. 21 NYMEX session when the gasoline contract shot up by 9.57¢/gal, this time it failed to pull up crude and heating oil prices along with it.
That indicates that traders don't see the recent surge in gasoline futures prices to be sustainable. They have "divorced" the oil futures market from the gasoline market in expectation that gasoline prices will fall "very rapidly" after the holiday, analysts said. Indeed, the October gasoline contract fell by 1.95¢ to 92.85¢/gal Monday on NYMEX.
Disruptions drive up prices
Retail US gasoline prices have escalated more than 15¢/gal in the last 2 weeks, spurred by disruptions to the industry's tightly balanced supply and demand market.
The Aug. 14 electric power failure in the Northeast US and parts of Canada temporarily disrupted operations at four US and five Canadian refineries. Andrew C. Fairbanks, vice-president, Merrill Lynch & Co. Inc., New York, said almost 4 million bbl of production—including 2 million bbl of gasoline and 800,000 bbl of distillate—were lost as a result (OGJ Online, Aug. 20, 2003).
Houston-based Kinder Morgan Energy Partners LP (KMEP) on Sunday restarted its Tucson-to-Phoenix, Ariz., products pipeline, which had ruptured July 30, spilling 12,000 gal of fuel. Workers subsequently discovered a defect in the pipe that was the apparent cause of the accident (OGJ Online, Aug. 22, 2003).
KMEP restarted the pipeline by reversing the flow on its 6-in. Phoenix-to-Tucson pipeline and connecting a section of that line to bypass a 4-mile section of the 8-in. Tucson-to-Phoenix pipeline. As a result, KMEP increased its capacity to deliver gasoline, jet fuel and diesel fuel to Phoenix to 183,000 b/d from 175,000 b/d previously, which earlier supplied some 30% of the Phoenix market for petroleum products.
In its Aug. 22 survey of 8,000 US gasoline outlets, the Lundberg Survey reported retail gasoline prices averaged $1.7484/gal, just below the record average of $1.7608/gal, set last March. The Phoenix market was hardest hit, with prices up by 60.42¢/gal during a 2-week period, the survey reported.
Other commodities
The October contract for benchmark US sweet, light crudes fell by 28¢ to $31.56/bbl Monday on NYMEX, while the November position retreated by 24¢ to $31.36/bbl. Heating oil for September delivery lost 0.6¢ to 82.4¢/gal.
The September natural gas contract plummeted 19.7¢ to $5.08/Mcf Monday on NYMEX, as a storm system in the Caribbean fizzled out. The September contract will expire Wednesday; meanwhile, the October contract fell by 20.4¢ to $5.13/Mcf Monday.
The NYMEX natural gas market was "undermined by weaker crude oil and a long (a market position that obligates the holder to take delivery) liquidation ahead of milder Northeast and Midwest weather expected next week, despite some heat this week," said analysts Tuesday at Enerfax Daily. The upcoming Labor Day holiday "typically means low demand" for natural gas, they said.
Meanwhile, US natural gas inventories currently are 15% below 2002 levels and 7% less than the 5-year average for this period. "The 5-year average injection for the remaining 11 weeks until (the start of the winter heating season in) November is 612 bcf, or 56 bcf/week, which would put inventories at 2.88 tcf," said Enerfax analysts. "To get to the 3 tcf (comfort) level in storage, average weekly injections of 67 bcf are needed."
In London, the International Petroleum Exchange was closed Monday for a bank holiday.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 16¢ to $29.01/bbl Monday.
Contact Sam Fletcher at [email protected]