MARKET WATCH: Energy prices hit new highs as inventories fall

Sam Fletcher
Senior Writer

HOUSTON, Apr. 10 -- For the first time, the front-month crude contract jumped past $112/bbl in intraday trading Apr. 9 in the New York market following a report that inventories of crude, gasoline, and distillate fuel all fell to unexpectedly low levels in the week ended Apr. 4.

Wall Street analysts were expecting a 2.5 million bbl increase in commercial US crude inventories, but the US Energy Information Administration reported a 3.2 million bbl drop to 316 million bbl. Gasoline stocks fell 3.4 million bbl to 221.3 million bbl during the same period vs. the Wall Street consensus of a 2.3 million bbl draw. Distillate fuel inventories declined by 3.7 million bbl to 106 million bbl, exceeding the consensus decrease of 1.3 million bbl (OGJ Online, Apr. 9, 2008).

It took only 2 min after the release of the latest EIA statistics "for computers to drive West Texas Intermediate $2/bbl higher," said Olivier Jakob at Petromatrix, Zug, Switzerland. Front-month contracts for benchmark US crudes, heating oil, reformulated blend stock for oxygenate blending (RBOB), North Sea Brent crude, and gas oil all hit record intraday highs during the session.

"The crude oil draw was larger than expected, but it would need a second week's confirmation since there were some fog delays [to Gulf Coast imports of crude] during that week," said Jakob. Imports of crude into the US fell 1.4 million b/d to 8.9 million b/d in that period. Meanwhile, Jacob said, "Gasoline remains in an overhang."

Jakob said, "The main price driver will remain the evolution of the dollar, and renewed geopolitical concerns will only bring an additional kicker on breaks of historic highs as the market will then start to focus on the next resistance level and what will be needed to move further ahead." The dollar declined against both the euro and the yen on Apr. 9.

Paul Horsnell, Barclays Capital Inc., London, said, "US oil demand improved in March after the weakness of February, and the latest [EIA] data points start the April data off strongly. Our view is that US gasoline demand may prove to be surprisingly robust across the second quarter."

Horsnell said, "Whatever demand is doing, it is strong enough relative to supply to lead to an unusually high rate of drawdown in inventory cover." Horsnell noted Apr. 9, "US oil product inventories have fallen at a rate of 610,000 b/d over the past 3 weeks relative to their normal seasonal pattern." Furthermore, downward revisions to US, Brazilian, and former Soviet Union production have taken 300,000 b/d off supply growth over the past 2 months, Horsnell said.

Analysts in the Houston office of Raymond James & Associates Inc. said, "Natural gas prices also had a strong day spurred by the news that the Independence Hub was forced to temporarily halt production." Independence Hub in the deep waters of the Gulf of Mexico was shut-in because of a leak from an o-ring gasket located on a flex joint of the Independence Trail pipeline. If repairs only involve applying more torque to the bolts, said Raymond James analysts, "We expect the pipeline and hub could be restarted after 1-2 weeks. However, if the flex joint or gasket is found faulty and needs to be replaced, then repairs could take up to 4 weeks, inclusive of testing."

Energy prices
The May contract for benchmark US sweet, light crudes hit an intraday record of $112.21/bbl before closing at a record $110.87/bbl, up $2.37 for the day on the New Mercantile Exchange. The June contract climbed by $2.33 to $110.19/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.37 to $110.87/bbl. Heating oil for May hit $3.26 in intraday trade before closing at $3.23/gal, up 12.43¢. The May RBOB contract hit a high of $2.82/bbl, then closed at $2.77/gal, up 2.38¢.

In London, the May IPE contract for North Sea Brent crude topped out at $109.50/bbl in intraday trade before closing at $108.47/bbl, up $2.13. The April gas oil contract hit an all-time high of $1,045/tonne, prior to closing at $1,024.75/tonne on a gain of $25.75.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes increased by 49¢ to $102.38/bbl.

Contact Sam Fletcher at [email protected].