By OGJ editors
HOUSTON, June 12 -- Futures prices for crudes and petroleum products continued to climb Wednesday, with new reports of major declines in US oil inventories.
The American Petroleum Institute estimated that oil stocks dropped by 2.7 million bbl to 285.6 million bbl during the week ended June 6, while gasoline inventories increased by 447,000 bbl to 210.1 million bbl and distillates jumped by 2.3 million bbl to 107.7 million bbl. The US Energy Information Administration reported an even bigger drop in US oil inventories, down 4.6 million bbl to 284.4 million bbl. However, it showed US gasoline stocks increasing by 2.6 million bbl to 209.9 million bbl and distillates up 2.8 million bbl to 107.3 million bbl during the same period.
Problems remain
"The problems of the US oil system haven't gone away, but they haven't got any worse," reported Paul Horsnell, analyst at J.P. Morgan Securities Inc., London. "Indeed, the deficit in total inventories (reported by EIA) from the 5-year average narrowed by 2.4 million bbl to now stand at a still cavernous 99.5 million bbl."
Moreover, he said, "The gasoline data might be expected to be the weakest numbers we will see this month, with a very slack first tentative reading for June demand and a large 4.7 million bbl build in inventories in the logistically integrated part of the US oil system (i.e. excluding the Rockies and the West Coast). Heating oil inventories showed their first decent build of the year so far, and diesel inventories continued to climb, leading diesel to be the only product showing an inventory level above the 5-year average."
US refineries continued to operate at maximum capacity during the reported period. As a result, said Horsnell, "Metaphorical nuts and bolts are beginning to be shaken out of the machine. Two California refineries went down on Monday, two Louisiana refineries went down on Tuesday. The system cannot maintain the rates it has been trying to achieve, and it may be that refineries are likely to be falling over randomly all summer."
New York market prices
The July contract for benchmark US sweet, light crudes increased by 63¢ to $32.36/bbl Wednesday on the New York Mercantile Exchange, while the August position was up 43¢ to $31.05/bbl. Unleaded gasoline for July delivery rose 1.7¢ to 93.41¢ gal. Heating oil for the same month added 0.36¢ for a total of 79.1¢ gal.
However, the July natural gas contract plunged by 11.7¢ to $6.21/Mcf, wiping out the previous day's small gain. The loss resulted from "technical selling and a softer physical market as mostly mild weather continued to depress demand," analysts said Thursday at Enerfax Daily. "While technical traders said the longer-term trend was still higher, they agreed the market was overbought and due for a pullback, particularly with no broad-based heat wave this week to boost demand."
Gas market outlook
Meanwhile, analysts said, "At least for now, the market shook off news of a tropical depression, but the storm season seems to be getting off to an early start." Tropical Depression 2 formed in the eastern Atlantic late Tuesday and built into a tropical storm Wednesday night, about 1,000 miles east-southeast of the Windward Islands.
Thursday, EIA reported an injection of 125 bcf of natural gas into US underground storage for the week ending June 6. That was up from injections of 114 bcf the previous week and 88 bcf during the same period last year. US gas storage now stands at 1.3 bcf, down 718 bcf from year-ago levels and 446 bcf below the 5-year average.
"Injections (during) the past 8 weeks have been 32.9% higher than the 5-year average,"
said James K. Wicklund, an analyst in the Houston office of Banc of America Securities LLC, New York. "If this trend continues, we estimate that inventories would enter winter at approximately 2.7 tcf, or nearly the same level as in the winter of 2000," he said. "While we do not expect gas to remain at levels seen the past couple weeks, we believe the relative tight gas supply should cause natural gas to remain around $5/Mcf at least through this year."
"It remains to be seen whether this week's injections were an anomaly," said Ron Denhardt, vice-president of natural gas services at Strategic Energy & Economic Research Inc., Winchester, Me. "However, even before these large injections, we have been warning that storage injections were too high to support recent prices."
Other prices
In London, the July contract for North Sea Brent oil gained 29¢ to $28.39/bbl on the International Petroleum Exchange. The July natural gas contract was up 2.7¢ to the equivalent of $2.90/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes increased by 35¢ to $27.86/bbl Wednesday as the 10 active members, minus Iraq, voted to maintain their current 25.4 million b/d production quota that went into effect June 1. The ministers said they would meet again July 31 to reassess market conditions.
Meanwhile, EIA said Thursday that Iraq's State Oil Marketing Organization (SOMO) awarded contracts for 9.5 million bbl of the 10 million bbl of oil in storage that it tendered last week (OGJ Online, June 6, 2003). According to EIA, SOMO awarded 2
million bbl each to Total SA and ChevronTexaco Corp. for the US market and a total of 5.5 million bbl to Repsol, Cepsa SA, Eni SpA, and a Turkish marketing firm, Turpas. Loading is set for June 17-30.
