MARKET WATCH Tight gasoline market pushes up energy prices

May 11, 2006
Energy futures prices continued to climb on May 10 with a government report that US gasoline inventories remain below last year's levels.

Sam Fletcher
Senior Writer

HOUSTON, May 11 -- Energy futures prices continued to climb on May 10 with a government report that US gasoline inventories remain below last year's levels just weeks before the start of the driving season May 29.

The Energy Information Administration said US gasoline stocks jumped by 2.4 million bbl to 205.1 million bbl during the week ended May 5. Commercial US inventories of crude inched higher by 300,000 bbl to 347 million bbl in the same period, while distillate fuel inventories increased by 200,000 bbl to 114.7 million bbl.

"Very strong industry refined product prices and refining margins motivated producers to maximize supply," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va. "With summer driving season less than 1 month away and demand holding up relatively well, given the high price environment, we expect refining margins to stay relatively strong over the next few months."

US product imports rose by 1 million b/d (57%) to a record 2.8 million b/d average, as April's high US northeast-Western Europe arbitrage premiums resulted in materially higher exports to the US, he said.

Valero Energy Corp. said May 10 it took down for needed repairs the 50,000 b/d delayed coking unit at its Texas City refinery, adding to the volatility of the petroleum products market. Company officials estimate the repairs will take 7 days, reducing distillate production by 40,000 b/d and gasoline production by 15,000 b/d.

Nigerian violence
Meanwhile, violence escalated in Nigeria with an on-the-street assassination of a US executive of Baker Hughes Inc. in Port Harcourt. The company confirmed an employee was shot May 10 while en route to work. A car impeded the executive's chauffeured vehicle as a gunman on a motorcycle pulled alongside and shot the man in the chest, authorities said. The dead man's identity was withheld, pending notification of family.

Nigerian militants previously had sabotaged oil production and transportation and had kidnapped oil field workers, who were later released. Some 550,000 b/d of crude production currently is shut down in Nigeria as a result.

"The geopolitical background is a key driver [of energy prices] given the absence of fundamental slack, and we see global balances tightening due to the continuing weakness of non-OPEC output," said Paul Horsnell, Barclays Capital Inc., London. Despite the increased violence in Nigeria, he said, "The key situation for the oil market remains Iran's external relations."

Energy prices
The June contract for benchmark US sweet, light crudes jumped by $1.44 to $72.13/bbl May 10 on the New York Mercantile Exchange, outstripping its gain in the previous session. The July contract increased by $1.35 to $73.57/bbl. In the US spot market, West Texas Intermediate at Cushing, Okla., was up by $1.44 to $72.14/bbl. Gasoline for June delivery escalated by 12.28¢ to $2.17/gal on NYMEX. Heating oil for the same month gained 6.96¢ to $2.06/gal.

The June natural gas contract shot up by 31.9¢ to $6.90/MMbtu on NYMEX, wiping out the previous day's loss as it followed the rising crude market.

In London, the May IPE contract for North Sea Brent crude gained $1.36 to $72.44/bbl. Gas oil for May advanced by $1 to $626.25/tonne.

The average price for the Organization of Petroleum Exporting Countries increased by 56¢ to $65.61/bbl on May 10.

Contact Sam Fletcher at [email protected].