MARKET WATCHEnergy futures markets rally, shake off bearish stock reports
Sam Fletcher
Senior Writer
HOUSTON, June 6 -- Futures prices for crude and petroleum products rebounded Thursday, wiping out most of Wednesday's losses as traders realized they overreacted to reports of large builds in US inventories of oil, gasoline, and distillate, since total supplies remain tight. Meanwhile, natural gas continued to rally as traders ignored a record high US storage injection.
Despite large increases in US petroleum stocks reported Wednesday by the American Petroleum Institute and the US Energy Information Administration for the week ended May 30, total domestic commercial inventories are "a still daunting 101 million bbl" below the 5-year average, said Paul Horsnell at J.P. Morgan Securities Inc., London (OGJ Online, June 5, 2003.).
Moreover, US gasoline inventories remain "slightly lower than they were a month ago, a period over which there should have been rapid builds," Horsnell said.
Producers meeting
Meanwhile, energy ministers from Saudi Arabia and Venezuela are scheduled to meet Monday in Madrid with their counterparts from Mexico and other unidentified "major independent oil-producing countries" to analyze the world oil market and "study strategies" in case members of the Organization of Petroleum Exporting Countries decide to reduce production at their June 11 meeting in Doha, Qatar.
But with world oil markets still tight, Horsnell said, there is no need for OPEC members to cut production.
Among matters to be discussed in Madrid is "the possibility of establishing the participation of friendly nations" in Venezuela's oil and gas operations, said Rafael Ramirez, Venezuela's energy minister, in an interview with the Venezuelan state news agency, Venpres.
Ramirez said he recently visited Mexico for negotiations involving Venezuela's heavy and extra-heavy crudes He said the Madrid meeting might be the place to define and work out agreements.
In other action, Iraq's State Oil Marketing Organization announced Thursday a tender for shipment of 10 million bb of crude stored at the Turkish port of Ceyhan on the Mediterranean and at Iraq's southern terminal of Mina Al-Bakr. The bidding round closes June 10, with loading set for June 17-30.
Energy prices
The July contract for benchmark US light, sweet crudes rebounded by 69¢ to $30.74/bbl Thursday on the New York Mercantile Exchange, wiping out the previous day's loss. The August position surged by 73¢ to $29.68/bbl for an overall gain. Unleaded gasoline for July delivery increased by 2.09¢ to 88.52¢/gal Thursday, recouping most of its Wednesday loss. Heating oil for the same month was up 2.01¢ to 77.23¢/gal, more than offsetting its previous loss.
The July natural gas contract continued its advance, jumping by 14.6¢ Thursday to $6.52/Mcf on NYMEX. That rally was "driven higher by a steady stream of technical buying after an early test of support held," with traders "ignoring early selling in a soft cash market and a bearish weekly inventory report," analysts said Friday at Enerfax Daily.
EIA reported Thursday a record high injection of 114 bcf into US underground storage during the week ended May 30, compared with injections of 95 bcf the previous week, 107 bcf during the same period last year, and a 5-year average of 89 bcf.
However, Ronald Barone at UBS Warburg LLC, New York, reported Thursday that record injection rate was aided by "lackluster national temperatures, the effects of (US Memorial Day) holiday related shutdowns (by some industrial and commercial users), and virtual flat US electric output" during that period. Assuming normal weather and with no holiday shutdowns among major consumers this week, Barone expects "a slight decline" in EIA's next gas injection report.
The US now has 1.2 tcf of natural gas in storage, up from a record low of 623 bcf during the week ended Apr. 11. But current supplies remain well below the 1.95 tcf of gas in storage at this time last year and the 5-year average of 1.7 tcf.
"Our calculations now suggest that the industry will require a significant injection pace of 11.7 bcfd to get supplies to the 3 tcf comfort level by Nov. 1," said Barone. "This compares with the 7.7 bcfd average injection rate during 2002 and the 9.3 bcfd average rate over the past 9 years, when deliverability was higher and underlying demand was lower."
Other prices
In London, the July contract for North Sea Brent oil gained 84¢ to $27.65/bbl Thursday on the International Petroleum Exchange, more than offsetting the previous day's loss of 47¢/bbl. The July natural gas contract continued its upward movement by 0.5¢ to the equivalent of $2.82/Mcf on IPE.
The average price for OPEC's basket of seven benchmark crudes inched up 5¢ to $26.77/bbl Thursday.
Contact Sam Fletcher at [email protected]