MARKET WATCHGovernment reports push crude price down, gas up

Sam Fletcher
Senior Writer

HOUSTON, May 5 -- The June crude contract tumbled below $70/bbl May 4 as the New York market continued its bearish reaction to a reported build in US gasoline inventories.

But the natural gas price for the same month rebounded slightly following a smaller-than-expected injection of gas into US underground storage.

The Energy Information Administration reported the injection of 53 bcf into US storage during the week ended Apr. 28. That was down from an injection of 80 bcf the previous week but up from 39 bcf put into storage during the same period a year ago. US storage now stands at 1.9 tcf, up by 469 bcf from a year go and 713 bcf above the 5-year average.

Analysts' outlooks
The lower-than-expected injection was partly the result of "some incremental fuel switching from residual fuel oil to natural gas," said Robert S. Morris at Banc of America Securities LLC, New York.

EIA earlier reported US gasoline stocks rose by 2.1 million bbl to 202.7 million bbl in the same period because of a large build in blending components (OGJ Online, May 4, 2006). That eased traders' fears of a supply crunch ahead of the driving season. But industry analysts noted that US demand for gasoline remained flat during that week due to high pump prices, while US refineries were operating at 88.8% of capacity.

In fact, US gasoline inventories have increased by an average of 2.9 million bbl during that same period for "every single year this decade," so the latest rise "is not exactly trend-breaking," said Paul Horsnell, Barclays Capital Inc., London. "The build in [total US] oil product inventories relative to normal seasonal trends has narrowed by a further 4.5 million bbl to now stand at 11.7 million bbl, with the gap now having narrowed by a cumulative 33 million bbl over the past 10 weeks. Some three quarters of the mid-February build in oil product inventories above their 5-year average has now disappeared, as US products continue to tighten relative to the normal pattern," said Horsnell in a May 3 report.

"Although we may see relief from increased output from refiners (in efforts to satisfy summer demand), we expect a floor on oil prices from continued misalignment of the UN Security Council and Iran," said analysts in the Houston office of Raymond James & Associates Inc.

Energy prices
The June contract fell by $2.34 to $69.94/bbl May 4 on the New York Mercantile Exchange. The July contract lost $2.31 to $71.60/bbl. On the US spot market, West Texas Intermediate was down by $2.34 to $69.95/bbl. Gasoline for June delivery dropped 9.11¢ to $1.99/gal on NYMEX. Heating oil for the same month declined by 6.55¢ to $1.94/gal.

The June natural gas contract escalated by 30¢ to $6.91/MMbtu on NYMEX. Analysts at Enerfax Daily said, however, "There is really not much evidence of new demand in the last several weeks, and lower prices are likely in the offing."

In London, the May IPE contract for North Sea Brent crude fell by $2.36 to $70.29/bbl. The May gas oil contract lost $19.75 to $614.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined by $2.27 to $66.41/bbl on May 4.

Contact Sam Fletcher at [email protected].