MARKET WATCH: Crude futures price falls from record high

Sam Fletcher
Senior Writer

HOUSTON, Apr. 30 -- Crude oil fell more than $3/bbl Apr. 29 from a record intraday high in the New York futures market, the biggest drop in 4 weeks, as the US dollar strengthened and oil began flowing again through the 700,000 b/d North Sea's Forties pipeline system that connects with 70 North Sea oil fields.

BP PLC closed that pipeline Apr. 27 at the start of a 2-day strike at Ineos Group Holdings PLC's 195,700 b/d Grangemouth, Scotland, refinery, which provided power to the pipeline. Production of as much as 3 bcfd of associated natural gas also had to be shut in, officials said. Earlier, Ineos officials said it would take 3 weeks to return the refinery to full capacity, while BP officials said it would take 4 days to restore pipeline operations fully (OGJ Online, Apr. 29, 2008).

"Earlier today, the Nigerian oil union agreed to return to work," said analysts Apr. 30 in the Houston office of Raymond James & Associates Inc. As a result, crude prices were relatively flat in premarket trading.

"Today is 'Fed-day' and pre-emptive selling was strong across the commodity board yesterday," said Olivier Jakob at Petromatrix, Zug, Switzerland. The Federal Open Market Committee, the policy-making arm of the Federal Reserve Bank, is expected to cut interest rates by another quarter of a percentage point to 2%, totaling a cut in rates of 325 basis points since last September, said Raymond James analysts. This could be the final reduction "in this cutting cycle," Raymond James said.

US inventories
The Energy Information Administration said Apr. 30 commercial US inventories of crude shot up by 3.8 million bbl to 319.9 million bbl in the week ended Apr. 25, far surpassing the outlook among Wall Street analysts for a hike of 600,000 bbl. US gasoline stocks fell 1.5 million bbl to 211.1 million bbl in the same period, surpassing a consensus decline of 900,000 bbl. Finished gasoline inventories rose during the week while gasoline blending components inventories fell. US distillate fuel inventories gained 1.1 million bbl to 105.8 million bbl, vs. expectations of a 300,000 bbl loss. Propane and propylene inventories increased by 900,000 bbl to 28.5 million bbl.

Imports of crude into the US increased by 174,000 b/d to 10.2 million b/d in that same week. The input of crude into US refineries declined by 79,000 b/d to 14.7 million b/d, however, with refineries operating at 85.4% of capacity, down from 85.6% the prior week. Gasoline production increased to 9 million b/d, and distillate fuel production rose to 4.2 million b/d.

"After declining 9% over the past 6 weeks, refined product inventories (gasoline plus distillate plus jet fuel) were unchanged this week. With gasoline margins above the cash break-even level in most regions of the country, we expect production to rise in the coming weeks," said Jacques H. Rousseau, an analyst at Soleil-Back Bay Research. "Coupled with weak demand (due in part to high retail gasoline prices), we expect refined product inventories to begin rising once again in May, which should put downward pressure on refining margins and stock prices, in our view."

Rousseau estimated the average US refining margin decreased to $13.97/bbl "over the past week" from $15.19/bbl previously, averaging $12.01/bbl so far this year vs. $18.19/bbl in 2007 and $15.92/bbl in 2006. He said, "We are raising our normalized natural gas price to $8.75/MMBtu, from $7/MMBtu, as a confluence of factors throughout the global energy supply chain should exert upward pressure on longer term prices."

Energy prices
The June contract for benchmark US light, sweet crudes dropped $3.12 to $115.63/bbl Apr. 29 on the New York Mercantile Exchange. It was the largest 1-day decline since Mar. 31 and the lowest closing since Apr. 17. The July contract lost $3 to $114.82/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.12 to $115.63/bbl. Heating oil for May delivery dropped 5.23¢ to $3.25/gal on NYMEX. The May contract for reformulated blend stock for oxygenate blending (RBOB) fell 9.15¢ to $2.94/gal.

The June natural gas contract fell 48.7¢ to $10.84/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 11.5¢ to $10.93/MMbtu.

In London, the June IPE contract for North Sea Brent crude dropped $3.31 to $113.43/bbl. The May gas oil contract gained $2.25 to $1,086/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes dropped $1.80 to $109.86/bbl on Apr. 29.

Contact Sam Fletcher at [email protected].