MARKET WATCHJune crude drops below $69/bbl on NYMEX

May 18, 2006
Front-month futures prices for crude and gasoline fell May 17 to the lowest levels since early April in the New York market.

Sam Fletcher
Senior Writer

HOUSTON, May 18 -- Front-month futures prices for crude and gasoline fell May 17 to the lowest levels since early April in the New York market as a rise in the consumer-price index fanned fears that the Federal Reserve would raise interest rates.

"Inflationary fears activated by the sell-off of [corporate] stocks drove crude prices down. In addition, US [commercial crude] stockpile withdrawal was less than expected in the past week, and production of gasoline shot up to a 10-month high, alleviating supply concerns and further putting downward pressure on crude," said analysts in the Houston office of Raymond James & Associates Inc.

US crude inventories dipped by 100,000 bbl to 346.9 million bbl in the week ended May 12. Distillate fuel inventories also declined by 100,000 bbl in the same period, to 114.6 million bbl, while gasoline stocks increased by 1.3 million bbl to 206.4 million bbl. Gasoline imports averaged 1.45 million b/d, "the third highest weekly average ever," said the Energy Information Administration (OGJ Online, May 17, 2006).

However, EIA data looked more bullish to Paul Horsnell, Barclays Capital Inc., London. "The oil product inventory overhang continues to be whittled away, with the gaps closing in distillates while gasoline inventories are keeping pace with the normal pattern despite surprisingly high import levels being recorded," he said.

Energy prices
The June contract for benchmark US sweet, light crudes lost 84¢ to $68.69/bbl May 17 on the New York Mercantile Exchange. The July contract dropped 90¢ to $69.49/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 84¢ to $68.70/bbl. Gasoline for June delivery fell by 5.1¢ to $1.98/gal on NYMEX. Heating oil for the same month was down 3.03¢ to $1.92/gal.

The June natural gas contract dropped 12.3¢ to $6.13/MMbtu, "falling for the fourth time in five sessions amid soaring supplies and mild weather across much of the nation," said analysts at Enerfax Daily. The price for the front-month gas contract on NYMEX has lost 7.2% in the last 2 weeks and 45% so far this year.

Meanwhile, EIA reported May 18 the injection of 91 bcf of natural gas into US underground storage in the week ended May 12. That was above the consensus of Wall Street analysts and up from injections of 85 bcf the previous week and 90 bcf in the same period a year ago. US gas storage now exceeds 2 tcf, up by 494 bcf from year-ago levels and 722 bcf above the 5-year average.

"Storage capacity is more than a month ahead of last year's storage level, and the current pace of injections is also ahead of last year. Storage last year didn't reach current levels until the middle of June," Enerfax analysts said.

The latest gas-injection report indicated "no incremental 'backed-out' demand vs. the prior week, and perhaps some impact from increased LNG imports to the US, given stronger domestic natural prices relative to Europe," said Robert S. Morris, Banc of America Securities LLC, New York.

"Estimated US LNG imports increased to 1.6 bcfd, on average, during April, compared with 1.1 bcfd, on average, in March, but about even with the 1.6 bcfd during April of last year. This increase was underscored by several cargoes being diverted, in a reversal from what had largely been the situation over the prior year, from Europe to the US, as domestic natural gas prices have improved significantly relative to prices in Europe since mid-March," Morris said. "Thus, despite being down roughly 18% year-to-date, we now expect US LNG imports for the full year to increase roughly 140 MMcfd, or an 8% year-over-year uptick, to just under 1.9 bcfd, on average, vs. our prior estimate of 1.7 bcfd."

In London, the July IPE contract for North Sea Brent crude fell by $1.04 to $69.04/bbl. The June gas oil contract dropped $8.25 to $612/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes dipped by 8¢ to $63.75/bbl on May 17.

Contact Sam Fletcher at [email protected].