MARKET WATCHOil futures prices climb with reports of US stock declines

Sam Fletcher
Senior Writer

HOUSTON, May 15 -- Energy futures prices continued to climb Wednesday with traders worrying about falling US inventories and the possibility of more terrorist attacks in the Middle East.

The death toll from bomb attacks Monday in Saudi Arabia increased by 5 to 34 Wednesday. Saudi authorities reported a 19-member Al-Qaeda team coordinated the attacks that also wounded nearly 200 people.

"The bomb attacks in Saudi Arabia have unsettled traders," said Paul Horsnell, an analyst with J.P. Morgan Securities Inc., London. "Any belief that some might have had that the end of the war in Iraq would remove all urgent geopolitical concerns from the market has been shattered. This is a decade in which politics and oil are inextricably linked."

Inventory declines
Energy prices also strengthened with a US Energy Information Administration report Wednesday that US oil stocks fell by 2.7 million bbl to 284.5 million bbl during the week ended May 9.

"For the second week running, total (US) commercial inventories (of crude and petroleum products) have fallen slightly in absolute terms (down 500,000 bbl to 904.7 million bbl total)," Horsnell reported Wednesday. "That means that they have fallen heavily relative to the 5-year average. That deficit now stands at 97.6 million bbl, 5.6 million bbl more than last week and 12.4 million bbl more than 2 weeks ago. Put another way, relative to the normal pattern, total US inventories have been falling away at 900,000 b/d over a 2-week period." Moreover, he said, "The oil product deficit increased for the sixth successive week and now stands at 57.5 million bbl."

US imports of both crude and gasoline "have been extremely high recently," Horsnell noted. However, he claimed neither trend can be maintained after prewar shipments of Iraqi crude work their way through the system. "The flow of information from Iraq continues to put back the putative timetables for the ramping up of output and to suggest that (the Organization of Petroleum Exporting Countries) is likely to face far less pressure at its June meeting than many had perhaps expected," he said.

Unlike IEA, the American Petroleum Institute reported a slight increase in US oil stocks, up 927,000 bbl to 287.1 million bbl total in the week ended May 9, with distillate stocks up by 2.1 million bbl to 99.7 million bbl. However, with the start of the US peak summer driving season imminent, API reported US gasoline stocks declined by 750,000 bbl to 207.5 million bbl.

IEA said US gasoline stocks increased by 800,000 bbl to 208.6 million bbl in the same period, with distillates up 2.6 million bbl to 99.9 million bbl.

Energy futures prices
The June contract for benchmark US sweet, light crudes gained 67¢ to $29.17/bbl Wednesday on the New York Mercantile Exchange, while the July position was up 70¢ to $28.78/bbl. Unleaded gasoline for June delivery jumped by 2.92¢ to 87.37¢/gal. Heating oil for the same month gained 2.23¢ to 76.41¢/gal.

The June natural gas contract inched up 0.6¢ to close at $6.31/Mcf Wednesday on NYMEX. "The market opened steady but dipped early, hitting the daily low of $6.13(/Mcf) by late morning before a sharp afternoon rally carried prices above $6.40(/Mcf)," said analysts at Enerfax Daily. That midday rally was sparked by "a bullish report on electricity use last week," they said. "Then late profit-taking brought (prices) back nearly flat for the day."

With natural gas prices pushing higher, Horsnell said, "There are some signs that demand destruction in natural gas is beginning to make an impact on oil demand." In particular, he said, petrochemical plants are switching from more expensive natural gas to less expensive liquid petroleum gas (LPG) and naphtha.

In London, the June contract for North Sea Brent oil rose 85¢ to $26.75/bbl Wednesday on the International Petroleum Exchange. The June natural gas contract gained 1.97¢ to the equivalent of $2.69/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes increased by 72¢ to $26.13/bbl Wednesday.

Contact Sam Fletcher at [email protected]