MARKET WATCH: Energy prices continue to fluctuate

Crude futures prices rebounded slightly while natural gas futures slipped again Feb. 3 on the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 4 -- Crude futures prices rebounded slightly while natural gas futures slipped again Feb. 3 on the New York market.

Crude trading was "very dull" and in "a very narrow range, the highlight of the day being the continued narrowing of the March-April contango," said Olivier Jakob at Petromatrix, Zug, Switzerland.

Crude prices were up in premarket trading Feb. 4 "despite yesterday's report from the American Petroleum Institute showing a 10.1 million bbl build and today's Department of Energy report forecasting a 2.6 million bbl increase in petroleum inventories," said analysts in the Houston office of Raymond James & Associates Inc. "Further lending support to crude prices are hints from the Organization of Petroleum Exporting Countries for more supply cuts, as well as threats from Nigerian oil workers to begin striking [Feb. 9] unless the government improves security in the Niger Delta," they said. Meanwhile, forecasts of warmer weather in the Northeast are expected to dampen the natural gas market.

Algerian Oil Minister and former OPEC Pres. Chakib Khelil said, "There's a 50-50 probability of further production cuts" at the organization's Mar. 15 meeting. In New Orleans analysts at Pritchard Capital Partners LLC noted that Saudi Arabia "seems to be implementing cuts more quickly and fully than any other member" since it was "the only one of the group's largest members to undershoot their target last month." They cited refiners' reports that UAE and Qatar plan further reductions in crude shipments in March.

In other news, Shell Oil Co. and the United Steelworkers International reached a tentative agreement Feb. 3 that should avoid a strike at US refineries.

US Inventories
The Energy Information Administration under the DOE said Feb 4 commercial US crude inventories jumped by 7.2 million bbl to 346.1 million bbl in the week ended Jan. 30. Gasoline inventories increased by 300,000 bbl to 220.2 million bbl in the same period, while distillate fuel inventories fell 1.4 million bbl to 142.6 million bbl.

According to IEA, imports of crude into the US increased by 329,000 b/d to 10 million b/d in that same week. Input of crude into US refineries increased 205,000 b/d to 14.3 million b/d, with units working at 83.5% of capacity. Gasoline production rose slightly to 8.7 million b/d while distillate fuel production remained relatively unchanged at 4.2 million b/d.

Earlier the American Petroleum Institute reported an 8.1 million bbl jump in crude to 346 million bbl; an increase of 2.15 million bbl in gasoline stocks; and a drop of 184,000 bbl in distillates, with refinery utilization at 83.9%.

"With the API showing a much larger stock build than expected in crude oil, which included a 2 million bbl build in Petroleum Administration for Defense District (PADD) 2, a continuation of the narrowing of the West Texas Intermediate contango can now be put in question a few days before the start of the roll of the main index positions," Jakob said.

In a report prior to the EIA release, however, he charged that the API numbers "do not add up." Jakob said, "The stock build in crude oil is very substantial, but at the same time the API is reporting a very significant drop in imports (down 1.3 million b/d to 8.8 million b/d) and an increase in refinery runs (up 438,000 b/d to 14.47 million b/d). The numbers should add to a draw of crude oil, not a build; hence we are faced with two very different pictures if looking at the reported stock numbers or at the breakdown of the supply and demand." He said, "We find the level of uncertainty too great to trade the outright stock number but large enough to be cautious in front of the DOE and to be prepared for a bearish outcome."

Jakob added, "To make it even more confusing, while the API is reporting a significant increase in refinery runs, it is reporting lower gasoline output (down 127,000 b/d) and only a slight increase in distillate production (up 52,000 b/d). The API remains below the DOE on product stocks."

Based on EIA statistics, Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said refined product inventories (gasoline plus distillate plus jet fuel) were unchanged as refiners maintained a low production level and imports declined. He said, "Gasoline demand was 1.1% above the same calendar week of 2008, a positive for refiners. However, it is important to remember that refiners are operating (83.5% utilization rate) well below capacity and that improvement in the gasoline margins is likely to be met by higher production, in our view."

Energy prices
The March contract for benchmark US light, sweet crudes gained 70¢ to $40.78/bbl Feb. 3 on the New York Mercantile Exchange. April contract increased 12¢ to $44.04/bbl. On the US spot market, WTI at Cushing, Okla., was up 70¢ to $40.78/bbl. However, heating oil for March delivery declined 1.7¢ to $1.33/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) lost 1.78¢ to $1.17/gal.

Natural gas for the same month dropped 4.4¢ to $4.51/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 47.5¢ to $5.04/MMbtu.

In London, the March IPE contract for North Sea Brent crude gained 26¢ to $44.08/bbl. Gas oil for February fell $6.25 to $422.75/tonne.

The average price for OPEC's basket of 12 reference crudes lost $1.12 to $41.52/bbl on Feb. 3.

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