MARKET WATCH: Energy prices continue to slump

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 19 -- Futures prices for oil and products continued to retreat Feb. 18 in anticipation of a continued build in US oil inventories.

"The market is most likely expecting a larger build in crude as oil comes out of storage from the contango trade. Should the inventory data disappoint and show a bigger build, it could signal more downside for oil," said analysts at Pritchard Capital Partners LLC, New Orleans, ahead of the Energy Information Administration report issued Feb. 19.

Olivier Jakob at Petromatrix, Zug, Switzerland, said recent data from various sources indicate that destruction of gasoline demand might be starting to bottom. The US Highway Administration indicated the amount of miles driven by US motorists during December was down only 1.6%, an improvement over the declines of 4-5% in recent months. "This improvement comes despite the rough weather driving conditions and higher unemployment rate and needs to be taken as a warning flag that price does matter for gasoline demand," Jakob said.

The Department of Energy has published its preliminary revisions for oil imports in December, sharply reducing crude imports by 615,000 b/d. Those revisions suggest that production cuts by the Organization of Petroleum Exporting Countries "could have a larger impact than estimated by looking at the weekly bulletin." Jacob said, "Oil imports in the US for December were 804,000 b/d lower than a year ago and 892,000 b/d lower than in November. An increase of 198,000 b/d vs. December 2007 was not enough to offset a decrease of 778,000/bd from OPEC," he said.

"The problem now is that the lower crude oil imports reported for December do not [match] anymore with the build in crude oil that was reported (3 million bbl) and would imply a stock reduction instead. These unless, of course, the refinery runs were also lower than the 693,000 b/d estimated in the weekly reports. One way or another it shows that contrarily to first estimates, the OPEC cuts were already starting to bite and this before the second round of more pronounced cuts," Jakob said.

US inventories
The Wall Street consensus was for an increase of 3.2 million bbl of crude in US storage. However, the EIA said Feb. 19 commercial US crude dipped by 200,000 bbl to 350.6 million bbl in the week ended Feb. 13, still above average for this time of year. "The 'other' [American Petroleum Institute] report showed a build of 2.3 million bbl," said analysts in the Houston office of Raymond James & Associates Inc.

Gasoline stocks jumped by 1.1 million bbl to 218.7 million bbl, instead of the expected 500,000 bbl decline. Distillate fuel inventories decreased 800,000 bbl to 140.8 million bbl, far short of the expected draw of 1.5 million bbl, with total distillate stocks still above average.

Imports of crude into the US dropped 859,000 b/d to 8.8 million b/d last week. Input into US refineries inched up 16,000 b/d to 14.1 million b/d, with units operating at 82.3% of capacity. Gasoline production increased to 8.8 million b/d. Distillate fuel production was up slightly to 4.1 million b/d.

Energy prices
The March contract for benchmark US sweet, light crudes dropped 31¢ to $34.62/bbl Feb. 18 on the New York Mercantile Exchange. The April contract lost $1.13 to $37.41/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 31¢ to $34.62/bbl. Heating oil for March declined 3.95¢ to $1.15/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) fell 4.66¢ to $1.07/gal.

Natural gas for the same month increased 1.1¢ to $4.21/MMbtu on NYMEX. That contract hit a new 52-week low of $4.04/MMbtu in intraday trading Feb. 18, said Pritchard Capital Partners. On the US spot market, gas at Henry Hub, La., dropped 8¢ to $4.29/MMbtu.

In London, the April IPE contract for North Sea Brent crude lost $1.48 to $39.55/bbl. Gas oil for March fell $13.75 to $365.25/tonne.

The average price for the OPEC's basket of 12 reference crudes dropped $1.75 to $38.14/bbl.

Contact Sam Fletcher at [email protected].