MARKET WATCH: IPE report pushes down energy prices

Oil prices tumbled to another 3-week low Jan. 15 on the New York market as IEA reduced its outlook for world demand for oil by 130,000 b/d to 88.2 million b/d during the first quarter of 2008.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 16 -- Crude prices tumbled to another 3-week low Jan. 15 on the New York market as the International Energy Agency in Paris reduced its outlook for world demand for oil by 130,000 b/d to 88.2 million b/d during the first quarter of 2008.

IEA raised its 2007 estimate of world oil demand by 150,000 b/d to 85.8 million b/d and predicted 2008 demand would be virtually unchanged at 87.8 million b/d. This means IEA "backtracked on its upward revision a month ago of 120,000 b/d to 2008 demand," said analysts in the Houston office of Raymond James & Associates Inc.

"This implies a 2.3% year-over-year growth, which we believe is too high," said Raymond James analysts. "Our current estimate for year-over-year growth in 2008 is 1.5%. Additionally, world supply rose by about 500,000 b/d during December, largely due to expected increases from the Organization of Petroleum Exporting Countries. As it stands, the report was pretty neutral, although, as an interesting data point, the IEA did note that Organization for Economic Cooperation and Development inventories fell from 5-year highs to 5-year lows from July to November of 2007."

IEA said total OECD oil industry stocks fell by 38.1 million bbl in November, lowering forward cover to 51 days. It said preliminary data indicated another draw of 30.7 million bbl by the US, Japan, and Europe in December.

World oil supply averaged 87 million b/d in December, up 870,000 b/d from November on additional production from OPEC, North America, the former Soviet Union, Brazil, and China. Global supply in the fourth quarter of 2007 was up 1 million b/d than a year earlier, having averaged at or below year-ago levels in the previous three quarters, IEA reported.

OPEC crude supply rose by 825,000 b/d to 32 million b/d in December with the inclusion of 500,000 b/d from Ecuador, which recently rejoined that organization, and the remaining 325,000 b/d coming from restored UAE production and higher Iranian exports. Nigerian supply was stable below 2.2 million b/d in December, despite threats of further rebel attacks. Effective OPEC spare capacity fell to 2.2 million b/d, of which 80% was held by Saudi Arabia, IEA said.

Fear of recession hit hard most asset classes and oil markets in particular during Jan. 15 trading, said Olivier Jakob of Petromatrix GMBH, Zug, Switzerland. "In all the gloom and doom, we need, however, to keep in mind that there has been basically no growth for the main petroleum products in the US over the last 2 years. World oil demand growth is coming from emerging Asia, not from North America, and because emerging Asia is not running on world market economics (subsidized retail prices) the lower oil prices should have a positive impact on demand (stocks have been draw down as retail prices in emerging countries could not follow the rising world market prices)," Jakob said.

Moreover, he said: "Winter is also not yet over, and the weather patterns are showing the US to be below normal for the next 2 weeks, while Western Europe should see a colder pattern in the second week. We pay little attention to the weather in the Middle East, but the region is undergoing one of its worse winter ever. Yesterday it was as cold in Riyadh as in Geneva or New York. From Turkey to Central Asia, temperatures are well below normal, and the region is pulling on its energy resources. Turkmenistan has cut natural gas supplies to Iran, which has cut supplies to Turkey, which has cut supplies to Greece."

US inventories
The Energy Information Administration said Jan. 16 commercial US crude inventories increased by 4.3 million bbl to 287.1 million bbl during the week ended Jan. 11. It was the first gain in several weeks, surpassing Wall Street expectations of a 500,000 bbl increase. Gasoline stocks gained 2.2 million bbl to 215.3 million bbl the same week, while distillate fuel inventories were up 1.1 million bbl to 129.8 million bbl. Propane and propylene inventories fell 2.5 million bbl to 48.7 million bbl last week.

Imports of crude into the US rose by 583,000 b/d to 10.4 million b/d during the same period. However, input of crude into US refining decreased by 760,000 b/d to 15 million b/d with refineries operating at 87.1% of capacity. Gasoline production was reduced to 9 million b/d, and distillate production was down to 4.3 million b/d.

Energy prices
The February contract for benchmark US light, sweet crudes dropped $2.30 to $91.90/bbl Jan. 15 on the New York Mercantile Exchange. The March contract lost $2.14 to $91.73/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.30 to $91.91/bbl. Heating oil for February delivery lost 4.2¢ to $2.55/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) dropped 6.36¢ to $2.31/gal.

The February natural gas contract lost 15.7¢ to $8.20/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 20¢ to $8.25/MMbtu.

In London, the February IPE contract for North Sea Brent crude retreated by $1.94 to $90.98/bbl. The February gas oil contract lost $10 to $798.50/tonne.

The average price for OPEC's basket of 12 reference crudes dipped by 13¢ to $88.49/bbl.

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