MARKET WATCH: Anticipated stock increase trims oil prices

Feb. 13, 2008
Speculation that the government would report another increase in US oil inventories for the fifth consecutive week caused energy prices to dip Feb. 12 on the New York market, ending a 3-session rally.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 13 -- Speculation that the government would report another increase in US oil inventories for the fifth consecutive week caused energy prices to dip Feb. 12 on the New York market, ending a 3-session rally.

Traders shrugged off a virtually meaningless announcement that Petroleos de Venezuela SA has stopped sales of crude and petroleum products to ExxonMobil Corp. in retaliation for the US-based international company seeking court orders to freeze PDVSA's assets in the US, UK, the Netherlands, and Netherlands Antilles pending negotiations of a settlement for ExxonMobil's heavy oil operations nationalized last year by Venezuelan President Hugo Chavez.

ExxonMobil last week won a temporary order of attachment from a federal court in New York City freezing $315 million in a Venezuelan account in the US, pending a Feb. 13 hearing at which that order will be confirmed or cancelled (OGJ Online, Feb. 12, 2008). It also won rulings blocking the sale or transfer of some $12 billion in PDVSA assets in the other countries; a hearing on the UK court decision is scheduled Feb. 22.

"If the New York court was to not confirm the order of attachment against PDVSA, we would expect much of the 'Exxon premium' to erode before the London hearing," said Olivier Jakob of Petromatrix GMBH, Zug, Switzerland.

Although PDVSA has "paralyzed" sales to ExxonMobil, the world's largest refiner, the state-owned Venezuelan company said it will continue to supply crude to the 187,000 b/d refinery in Chalmette, La., that it co-owns with ExxonMobil. "The volume of direct sales [to ExxonMobil] was only about 3 million bbl/month, and the industry is well trained to circumvent such black-listing; hence it will have little disruptive impact," Jakob said.

ExxonMobil and ConocoPhillips were the only two international companies to pull out when Venezuela nationalized those holdings. Mark Albers, senior vice-president of ExxonMobil, and James J. Mulva, chairman, president, and chief executive of ConocoPhillips, were both featured speakers Feb. 12 at an annual energy conference in Houston sponsored by Cambridge Energy Research Associates; both waved off repeated questions about their dealings with PDVSA, except to say they are still in arbitration with the Venezuelan government and PDVSA over the fair market value of the heavy oil projects. Mulva said negotiations continue and "we are making progress." However, most observers say the process could take several years.

US inventories
The Energy Information Administration said Feb. 13 commercial US inventories of crude rose by 1.1 million bbl to 301.1 million bbl in the week ended Feb. 8. Analysts were expecting an increase of 2.5 million bbl. Gasoline stocks gained 1.7 million bbl, up from a consensus of 1.4 million bbl, to 229.2 million bbl during the same period with increases in both finished gasoline and gasoline blending components. Distillate fuel inventories decreased by 100,000 bbl to 127 million bbl, well below the consensus of a 1.3 million bbl draw. Propane and propylene inventories dropped 1.7 million bbl to 36.8 million bbl last week.

Imports of crude into the US were down by 777,000 b/d to 9.7 million b/d, partly because of fog along the Houston Ship Channel that disrupted lightering operations. Input of crude into US refineries increased by 69,000 b/d to 14.6 million b/d, however, with refineries operating at 85.1% of capacity. Gasoline production increased to 8.9 million b/d, and distillate fuel production rose to 4.1 million b/d.

Total refined product inventories (gasoline, distillate, and jet fuel) increased by 1.5 million bbl during the week. "However, it was the smallest gain in the last 7 weeks," said Jacques H. Rousseau, an analyst at Soleil-Back Bay Research.

Energy prices
The March contract for benchmark US light, sweet crudes dropped 81¢ to $92.78/bbl Feb. 12 on the New York Mercantile Exchange. The April contract lost 75¢ to $92.86/bbl. On the US spot market, West Texas Intermediate was down 81¢ to $92.79/bbl. Heating oil for March delivery slipped 1.33¢ to $2.59/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) declined 2.82¢ to $2.37/gal.

The March natural gas contract fell 9.5¢ to $8.44/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 4.5¢ to $8.43/MMbtu. "During this recent bout of cold weather, natural gas has gained over 12%, threatening $8.50/Mcf," said analysts in the Houston office of Raymond James & Associates Inc.

In London, the March IPE contract for North Sea Brent crude was down 67¢ to $92.86/bbl. Gas oil for February was unchanged at $849/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 60¢ to $89.78/bbl.

Contact Sam Fletcher at [email protected].