MARKET WATCHUS negotiation offer reduces crude prices
Sam Fletcher
Senior Writer
HOUSTON, June 1 -- Crude prices fell May 31 in a knee-jerk market reaction to a US offer to participate in European-led negotiations to persuade Iran to give up uranium enrichment for its nuclear power program.
The negotiations would be the first direct contact in several years between the US and Iranian governments. But a cool response to that offer by Iran's state-run news agency stopped the initial sell-off of crude futures, with some traders scrambling to buy back contracts they had just sold. United Nations, German, and Iranian officials were scheduled to meet June 1 to discuss incentives for Iran to halt a program that could produce weapons-grade uranium (OGJ Online, May 31, 2006).
Ministers of the Organization of Petroleum Exporting Countries were meeting June 1 in Caracas. The group was expected to retain its current production limit of 28 million b/d for the 10 members other than Iraq.
US inventories
The Energy Information Administration said June 1 commercial US crude inventories increased by 1.6 million bbl to 345.5 million bbl during the week ended May 26. Gasoline stocks advanced by 800,000 bbl to 209.3 million bbl in the period just prior to the start of the peak US driving season. Distillate fuel inventories rose by 1.8 million bbl to 118.9 million bbl.
US imports of crude increased by 1.3 million b/d to 10.8 million b/d in the same period. Gasoline imports were 1.6 million b/d, the third highest weekly average ever. Input of crude into US refineries climbed by 186,000 b/d to 15.5 million b/d, with refineries operating at 91.4% of capacity. That is the highest utilization rate for US refineries since the week ending August 26, 2005, 3 days before Hurricane Katrina made landfall in Louisiana. Nevertheless, US gasoline production remained relatively flat at 9.2 million b/d, while distillate fuel production inched lower to 4.1 million b/d.
EIA's weekly petroleum report was delayed 1 day because of the Memorial Day holiday.
Energy prices
The July contract for benchmark US crudes fell by 74¢ to $71.29/bbl May 31 on the New York Mercantile Exchange. The August contract lost 58¢ to $72.29/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 74¢ to $71.29/bbl. Heating oil for June delivery dropped 4.34¢ to $1.96/gal on NYMEX. Gasoline for the same month dipped by 0.88¢ to $2.14/gal.
However, the July contract for natural gas escalated by 26.1¢ to $6.38/MMbtu on May 31, the day before the official start of the hurricane season in the North Atlantic and Gulf of Mexico. "Prices jumped late to finish at the highest in over a week. Fresh memories of last year's devastating hurricanes prompted the rally," said analysts at Enerfax Daily.
The 2006 hurricane season generally is expected to be unusually active, although not as bad as the record 2005 season. Meanwhile, EIA reported the injection of 80 bcf of natural gas into US underground storage during the week ended May 26. That increased the amount of gas in storage to more than 2.2 tcf, 477 bcf more than the previous year in the same period and 706 bcf above the 5-year average.
In London, the July IPE contract for North Sea Brent crude dropped 64¢ to $70.41/bbl. The June contract for gas oil fell by $17.75 to $619.25/tonne.
The average price for OPEC's basket of 11 benchmark crudes fell by 48¢ to $64.93/bbl on May 31.
Contact Sam Fletcher at [email protected].