MARKET WATCHGasoline stock build pushes down energy prices

Sam Fletcher
Senior Writer

HOUSTON, May 4 -- Energy prices fell below $73/bbl May 3, rolling back much of the gains from the two previous trading sessions on the New York market, after the Energy Information Administration reported the first rise in US gasoline inventories in 9 weeks.

Gasoline stocks rose by 2.1 million bbl to 202.7 million bbl in the week ended Apr. 28 "due to a large build in blending components," said EIA. That surprise increase eased worries of a supply crunch ahead of the driving season, said analysts at Enerfax Daily.

Commercial US crude inventories increased by 1.7 million bbl to 346.7 million bbl, the highest reported level since May 29, 1998. Distillate fuel fell by 1.1 million bbl to 114.5 million bbl in the same period, with declines in both diesel and heating oil (OGJ Online, May 3, 2006).

Many observers expect energy prices to remain high for some years, however, due to growing demand of crude and a fairly stagnant and frequently threatened supply. In a May 2 poll during a technical session of the Offshore Technology Conference in Houston, 42% of the respondents said they expect crude prices to remain high for 3-5 years while 26% forecast high crude prices to last 1-2 years (OGJ Online, May 3, 2006).

Some analysts claim risks of disruptions of crude supplies account for as much as $32/bbl of the current price of oil, including $6-15/bbl directly attributable to the standoff over Iran's nuclear program. But underreporting of US crude stocks by the Department of Energy's EIA "might have as much to do with the current high oil prices as other geopolitical factors," said analysts at Petromatrix GMBH, Zug, Switzerland. In a May 4 report, they cited "a great and unexplained inconsistency" between the numbers published in EIA's weekly reports and its monthly revisions, which amounted to an increase of more than 9 million bbl to 342 million bbl in February. There have been previous complaints among analysts of discrepancies between the prompt weekly and lagging monthly government reports of US energy stocks.

On May 3, the US, Britain, and France introduced a resolution in the United Nations Security Council threatening unspecified "further measures" if Iran doesn't suspend uranium enrichment. That goes further than an earlier Security Council resolution and is opposed by Russia and China.

Other geopolitical risks include continued violence in Iraq, nationalization of Bolivia's oil and gas industry, tensions between the US and Venezuela's President Hugo Chavez, and civil unrest in Nigeria, which has shut in 500,000 b/d of that country's crude production. Nigerian officials said again this week they expect production to return to prior levels "soon." However, the Royal Dutch Shell Group has said it will keep its 455,000 b/d shut in until oil field operations can be secured in the Niger Delta.

Energy prices
The June contract for benchmark US sweet, light crudes dropped $2.33 to $72.28/bbl May 3 on the New York Mercantile Exchange. The July contract fell by $2.15 to $73.91/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $2.33 to $72.29/bbl. Gasoline for June delivery registered an unusually large 1-day drop of 8.94¢ to $2.09/gal on NYMEX. Heating oil for the same month declined by 7.56¢ to $2/gal.

The June natural gas contract lost 14¢ to $6.61/MMbtu on NYMEX. "Recent declines in the price of natural gas have given manufacturers a chance to buy at a steep discount to oil-based fuels. Up to 10% of US manufacturers and power plants have the ability to choose between oil and natural gas to fuel equipment," said Enerfax Daily analysts.

In London, the June IPE contract for North Sea Brent crude retreated by $1.99 to $73.65/bbl. Gas oil for May delivery lost $10.25 to $634.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes decreased by 32¢ to $68.08/bbl on May 3.

Contact Sam Fletcher at [email protected].