MARKET WATCH: Energy prices decline in market adjustment

Energy prices declined May 5 in a market adjustment that reduced but did not eliminate the price surge from the previous session.

May 6th, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 6 -- Energy prices declined May 5 in a market adjustment that reduced but did not eliminate the price surge from the previous session. Prices were up again in early trading May 6.

In New Orleans, analysts at Pritchard Capital Partners LLC said, "Recent economic data releases continue to show an increase in economic activity and at some point this should create and we should see an increase in demand for both crude and gasoline."

Analysts in the Houston office of Raymond James & Associates Inc. said, "Today, the broader [equity] markets will be eyeing the results of the US government bank stress tests for signs of economic recovery, which could indicate growth in oil demand."

Meanwhile, Pritchard Capital Partners said feedback from conference calls by exploration and production companies indicate industry executives think natural gas will rebound late this year or early in 2010. Pritchard Capital analysts reported, "Mark Papa, CEO of EOG Resources Inc., said he sees US natural gas production down 4.5 bcfd [of gas equivalent] by the end of 2009." That, the analysts noted, is in contrast to PIRA [Petroleum Industry Research Associates] Energy Group's estimated decline of 3 bcfed. "If Papa's comments are correct, the bottom for natural gas may be near," said analysts.

In other news, Raymond James analysts reported China approved a plan to set up 10 million tons of refined fuel state reserves by 2011 as part of its economic stimulus plan. At China's current consumption, it would provide 2 weeks of gasoline, diesel, and kerosine combined.

US inventories
The Energy Information Administration reported May 6 commercial US inventories of crude increased 600,000 bbl to an above average 375.3 million bbl in the week ended May 1. That was far short of Wall Street's consensus of a 2.5 million bbl gain. Gasoline stocks decreased 200,000 bbl to 212.4 million bbl in the same period, contrary to the consensus for a 700,000 bbl increase. Distillate fuel inventories climbed by 2.4 million bbl to 146.5 million bbl, also above average and far surpassing expectations of a 1 million bbl build.

Imports of crude into the US increased by 96,000 b/d to 9.9 million b/d in that same week. The input of crude into US refineries escalated by 420,000 b/d to 14.8 million b/d with units operating at 85.3% of capacity. Gasoline production increased to 8.9 million b/d, and distillate fuel production was up slightly to 4.2 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said the latest EIA data indicate a further weakening of refined product demand. "Last week's consumption level of gasoline plus distillate plus jet fuel was the lowest total since January and 8% below year-ago levels," he said. "Coupled with rising refinery utilization rates, we expect refined product inventories to continue increasing in the second quarter, keeping downward pressure on refining margins."

Energy prices
The June contract for benchmark US light, sweet crudes traded as high as $54.83/bbl May 5 before closing at $53.84/bbl, down 63¢ day on the New York Mercantile Exchange. The July contract lost 74¢ to $55.44/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 63¢ to $53.84/bbl. Heating oil for June delivery slipped by 0.83¢, but its closing price was virtually unchanged at an average $1.43/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) declined 1.38¢ to $1.57/gal.

The June natural gas contract dropped 1.1¢ to $3.62/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped by 16¢ to the identical closing price, $3.62/MMbtu.

In London, the June IPE contract for North Sea Brent crude fell 46¢ to $54.12/bbl. Gas oil for May dipped 25¢ to $449.50/tonne.

However, the average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained 60¢ to $52.71/bbl on May 5.

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