MARKET WATCHInventory losses prompt energy futures price gains

Sam Fletcher
Senior Writer

HOUSTON, July 24 -- Buoyed by industry and government reports of declines in US inventories of crude and gasoline, energy futures prices rose slightly Wednesday from the previous day's plunge.

The fall in US stocks, coupled with a general perception that the energy commodities market was oversold Tuesday, seemed to stabilize prices, analysts said.

The new near-month September contract for benchmark US sweet, light crudes gained 18¢ to $29.67/bbl on the New York Mercantile Exchange, with the October position advancing by 19¢ to $29.32/bbl. Heating oil for August delivery rose 0.86¢ to 76.5¢/gal. Unleaded gasoline for the same month was up 0.75¢ to 89.58¢/gal.

The August natural gas contract inched up by 0.8¢ to $4.88/Mcf Wednesday on NYMEX. "After dropping 5% on Tuesday, the market saw some short-covering (buying by traders who had sold contracts to establish a market position but had not previously closed out their positions through offsetting purchases), but with no really hot weather in the forecast, (gas prices are) not expected to go much higher in the short-term," analysts at Enerfax Daily reported Thursday.

Wednesday trade in the NYMEX gas market was uneven. "The market opened steady and drifted higher early, but dipped back lower by noon before heading to the (session's) peak of $4.955(/Mcf) by mid-afternoon, only to drop back to near even at the close," said Enerfax analysts.

Early Thursday, the US Energy Information Administration reported the injection of 83 bcf of natural gas into US underground storage during the week ended July 18. That was down from 93 bcf the previous week but up from 64 bcf during the same period a year ago. US natural gas storage now stands at 1.95 tcf, down 537 bcf from year-ago levels and 286 bcf below the 5-year average.

Oil inventories
On Wednesday, the American Petroleum Institute reported US oil inventories declined by 655,000 bbl to little more than 277 million bbl during the week ended July 18. US gasoline stocks dropped 1.1 million bbl to 208.4 million bbl, it said, while distillate inventories increased by 372,000 bbl to 113.8 million bbl.

EIA reported even bigger declines for the same period, with crude stocks down by 2.3 million bbl to 276.3 million bbl. It said US gasoline inventories lost 1.6 million bbl to 207.8 million bbl, with distillates growing by 500,000 bbl to 115.2 million bbl.

"The key point about (the latest EIA) data is that the deficit in total (US commercial crude and petroleum products) inventories from the 5-year average is not getting any better. Indeed, it has widened by 5.2 million bbl to now stand at 106.5 million bbl, the largest gap of this year," said Paul Horsnell, J.P. Morgan Securities Inc., London.

Moreover, Horsnell noted, EIA put US refinery utilization at 93% during the week ended July 18�"the lowest since early April, which is neither a normal pattern nor the correct path for a system that faces such yawning oil product deficits."

Despite a continued slow build, US heating oil stocks remain "woefully inadequate" and "portend distinct trouble ahead should winter conditions be anything close to normal," Horsnell said, adding, "The gasoline market is also still looking somewhat uncomfortable and not completely out of the woods."

With world markets for oil and petroleum products still tight, OPEC's upcoming July 31 meeting will "probably prove to be unnecessary," he said.

"There were valid reasons (at OPEC's last session) in June to want to meet again, but the course of events has ultimately rendered the meeting somewhat superfluous," he said. "The case for making an early tweak (in OPEC production quotas for the fourth quarter of 2003) looks far less than convincing at the moment."

Other market prices
In London, the September contract for North Sea Brent oil gained 29¢ to $27.78/bbl Wednesday on the International Petroleum Exchange. The August natural gas contract gained 1.1¢ to the equivalent of $2.72/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 17¢ to $27/bb Wednesday.

Contact Sam Fletcher at [email protected]