MARKET WATCH: Energy prices fall as market worries over demand
Sam Fletcher
OGJ Senior Writer
HOUSTON, Mar. 11 -- Crude prices fell Mar. 10 after an agency of the US Department of Energy again reduced its estimate of world demand for oil in 2009.
The Energy Information Administration now expects oil demand to total 84.27 million b/d, down 430,000 b/d from its prior projection and 1.38 million b/d lower than 2008 levels.
Olivier Jakob at Petromatrix, Zug, Switzerland, noted that EIA "did not make a single reference" of also lowering its crude supply projections by 910,000 b/d, which was "twice as much as demand." The monthly report "was more on the supply than the demand side, but since the DOE sums up their demand revisions but not the supply revisions, it does take a bit more effort to come up to the supply number," he said.
Jakob said EIA reduced by 500,000 b/d the projected output by the Organization of Petroleum Exporting Countries and lowered its estimation of the group's production of natural gas liquids by 280,000 b/d. The net effect, he said, "translates in the DOE increasing its estimate of global stock draws in 2009 by 460,000 b/d…to 730,000 b/d."
He said, "Despite this increased estimate of stock draws for 2009, the DOE has revised its price forecast lower on the basis that the lower supplies make for higher spare capacity. It is true that increased spare capacity makes for a price cap, but in the meantime it also makes for higher stock draws and for a narrower contango, which will be price supportive before the spare capacity starts to be price negative."
Preliminary figures show Chinese crude imports were at the same levels as in January but 540,000 b/d lower than a year ago," Jakob reported.
Outlook for OPEC
When OPEC members meet Mar. 15 in Vienna, they likely will only reaffirm their December decision to reduce aggregate oil production by all members except Iraq by 4.2 million b/d, said analysts at the Centre for Global Energy Studies (CGES), London.
"Saudi Arabia looks set to argue that the output cuts implemented to date have been sufficient to stabilize the market at around $45/bbl for Brent, even though several members of the organization have done little to implement the cuts they agreed to make. Saudi Arabia itself will not be prepared to reduce further its own oil production until the other members of OPEC have implemented in full the cuts to which they have already agreed," they said.
"Algeria has been among the more hawkish OPEC members, a group that includes Iran and Venezuela, calling for deep cuts in production to force up prices. However, these same countries have been among the worst in actually implementing the cuts already agreed, and this is likely to work against any calls that they might make for more output cuts in Vienna," said CGES analysts.
They estimate OPEC members have implemented three quarters of the cut-backs to which they earlier agreed. According to the CGES assessment of OPEC's February production, Saudi Arabia has gone beyond its agreed output cut, reducing its production below 8 million b/d. "Compliance has also been good among the other Gulf Arab countries, the UAE, Kuwait, and Qatar, all of whom are estimated to have implemented around 85% of their agreed output cuts. Nigeria and Libya have implemented 60-70% of the output cuts they agreed to make, while compliance by Algeria and Angola is estimated to be between 50-60%," the analysts reported.
Iran, Venezuela, and Ecuador, on the other hand, "still have a long way to go" to implement fully their agreed reductions, said analysts. According to the CGES's estimates, implementation in these three countries remains below 40%, with Iran's production some 400,000 b/d above its quota level and Venezuela's over-production running at around 225,000 b/d. "Overall, OPEC's oil production in February was still more than 1 million b/d above the target level agreed in Algeria last December," the analysts said.
In New Orleans, Pritchard Capital Partners LLC analysts said oil production from Russia—"currently the world's largest oil producer and world's largest exporter"—fell to 9.72 million b/d in February with 5.37 million b/d exported. "Russia is exporting an increasingly larger percentage of its production," said Pritchard Capital Partners. "The fear is that Russia may add the extra barrels to the export market at the same time OPEC is cutting output."
US inventories
EIA reported Mar. 11 commercial US crude inventories gained 700,000 bbl to 351.3 million bbl in the week ended Mar. 6. It was the first increase in 3 weeks and surpassed the Wall Street consensus of a 300,000 bbl build. Crude inventories are above average for this time of year. Gasoline stocks dropped 3 million bbl to 212.5 million bbl, surpassing Wall Street's expectations of a 1 million bbl draw. Distillate fuel inventories jumped by 2.1 million bbl to 145.4 million bbl, also above average for that period. Wall Street was looking for only a 200,000 bbl gain.
Imports of crude into the US increased 93,000 b/d to 9.1 million b/d in the same week. The input of crude into US refineries, however, dropped 229,000 b/d to 14.1 million b/d with units operating at 82.7% of capacity. Gasoline production fell to 8.5 million b/d, while distillate fuel production increased to 4.2 million b/d.
Energy prices
The April contract for benchmark US light sweet crudes traded above $48/bbl early in the Mar. 11 session on the New York Mercantile Exchange, but then closed at $45.71/bbl, down $1.36 for the day. The May contract dropped $1.08 to $46.98/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.36 to $45.71/bbl. Heating oil for April declined 1.67¢ to $1.20/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) lost 3.79¢ to $1.30/gal.
Natural gas for the same month continued its decline, down 2.5¢ to $3.84/MMbtu on NYMEX. On the US spot market, the price of gas at Henry Hub, La., trickled down 0.5¢ but remained virtually unchanged at an average $3.87/MMbtu.
In London, the April IPE contract for North Sea Brent crude lost 17¢ to $43.96/bbl. Gas oil for March gained $2 to $384.25/tonne.
The average price for OPEC's basket of 12 reference crudes declined 45¢ to $43.69 on Mar. 10.
Contact Sam Fletcher at [email protected].