MARKET WATCHSurge in gasoline stocks drops prices

Feb. 9, 2006
Energy futures prices continued to fall Feb. 8 following a report that US gasoline inventories had soared to an 11-month high.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 9 -- Energy futures prices continued to fall Feb. 8 following a report that US gasoline inventories had soared to an 11-month high.

The US Energy Information Administration said Feb. 8 that US gasoline stocks jumped by 4.3 million bbl to 223.3 million bbl during the week ended Feb. 3. However, inventories of crude and of distillate fuel each fell by 300,000 bbl to 320.7 million bbl and 136 million bbl, respectively (OGJ Online, Feb. 8, 2006).

Inventory outlook
Nearly half of the latest build in US gasoline inventories was due to a big 290,000 b/d increase in imports from year-ago levels, said Jacques Rousseau at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va. "However, we expect imports to decline over the coming weeks as European refined-product markets continue to tighten due to increased demand resulting from the Eastern Hemisphere's record cold winter. Additionally, with this year's heavier-than-normal turnaround season, domestic production should decline ahead of the summer driving season," he said.

Paul Horsnell of Barclays Capital Inc., London, said, "We do not expect to see any sustainable move below $60[/bbl] in the current swing down" of crude prices. At the moment, he said, "Geopolitical issues have moved away from the market's immediate attention. However, we see developments as pointing to an increasing probability of the Iranian nuclear issue producing a nonbenign outcome for the oil market."

Horsnell noted a "perceived temporary imbalance between crude oil and oil products in the prompt market." Especially in the US, he said, "That imbalance is most marked in the case of gasoline. What the market is trying to achieve through price signals is, then, to tighten oil product markets relative to crude oil; to tighten gasoline relative to other products; to defer deliveries along the curve; and to reduce the scope for arbitrage of oil products into the US."

The primary problem is not an excess of crude, inventories of which haven't changed much in recent months. "Instead, the root has been an overstimulation of refinery activity at the global level, which has teased out virtually all of the remaining spare capacity on stream and which has led to the deferral of normal maintenance patterns. To reflect the need for an adjustment from that situation, refinery margins are currently being severely depressed," Horsnell said. "A strong signal is being sent for refineries to now begin what is expected to be a heavier-than-usual maintenance period."

EIA reported Feb. 9 the withdrawal of 38 bcf of natural gas from US underground storage in the week ended Feb. 3 vs. withdrawals of 88 bcf the previous week and 176 bcf during the same period in 2005. Storage now stands at 2.4 tcf of natural gas, up by 437 bcf from year-ago levels and 649 bcf above the 5-year average.

Energy prices
The March contract for benchmark US sweet, light crudes dropped 54¢ to $62.55/bbl Feb. 8 on the New York Mercantile Exchange. The April contract lost 61¢ to $63.53/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 54¢ to $62.56/bbl. Gasoline for March delivery fell by 4.59¢ to $1.55/gal. Heating oil for the same month declined by 2.62¢ to $1.67/gal. The March natural gas contract dropped 12.3¢ to $7.74/MMbtu.

In London, the March contract for North Sea Brent crude lost 50¢ to $61.06/bbl on the International Petroleum Exchange. The February gas oil contract fell by $5 to $524.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes dropped 97¢ to $57.38/bbl.

Contact Sam Fletcher at [email protected].