MARKET WATCH: Crude, product prices decline

Sam Fletcher
Senior Writer

HOUSTON, Aug. 9 -- Energy prices fell Aug. 8 as traders shrugged off a surprise decline in gasoline inventories and focused instead on market expectations of reduced demand for that fuel.

The Energy Information Administration reported Aug. 8 that commercial US crude inventories fell 4.1 million bbl to 340.4 million bbl in the week ended Aug. 3, exceeding the 2.8 million bbl draw that was the consensus of Wall Street analysts. Gasoline stocks dropped 1.7 million bbl to 203 million bbl vs. market expectations of an 800,000 bbl build. Distillate fuel inventories rose 1 million bbl to 127.5 million bbl, not as much as expected. US refineries were operating at 91.3% of capacity, down from 93.6% the prior week and the first decline in several weeks (OGJ Online, Aug. 8, 2007).

"For the second week in a row, positive crude statistics are used as a selling point [in energy futures markets], confirming a change of pattern from previous weeks," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

In addition to the sharp draw in crude and gasoline inventories, statements by officials of the Organization of Petroleum Exporting Countries that they plan no increase in crude production at their September meeting; a dollar index that is "not holding to gains;" and solid equity performance by the stock markets were "not enough to revive crude oil, which remained for a second day in a narrow consolidating [price] range," Jakob said.

"The crude oil stock draws in the weekly statistics would be a positive input but the question mark is on the next level of refinery runs when they already show a large weekly reduction and should be even lower in the next report with more refinery 'operational issues,'" he said. Poor margins will not give refiners the incentive to run at maximum summer rates. "Europe is under some run cuts and maintenance programs are being pushed forward; the same happening in the US would put a cap on the supportive impact of the current crude stock draws," said Jakob.

Moreover, he said, "The US energy secretary stated [Aug. 8] that the US could resume the refill of Strategic [Petroleum] Reserve this fall. They do not fill the reserves in tight market conditions, so this somehow does not tick with their description of a forward tight market and is the wrong thing to say when pushing OPEC to increase production."

Energy prices
The September contract for benchmark US sweet, light crudes dropped 27¢ to $72.15/bbl Aug. 8 on the New York Mercantile Exchange. The October contract fell 44¢ to $71.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 25¢ to $72.18/bbl. The September contract for reformulated blend stock for oxygenate blending (RBOB) lost 0.65¢ to $1.94/gal on NYMEX. Heating oil for the same month, however, inched up 0.27¢ to $1.97/gal.

The September natural gas contract picked up 1.9¢ to $6.22/MMbtu on NYMEX. On the US spot market, however, gas from Henry Hub, La., lost 7.5¢ to $6.31/MMbtu. On Aug. 9, EIA reported the injection of 42 bcf of natural gas into US underground storage for the week ended Aug. 3. That was below the consensus of Wall Street analysts and compared with the injection of 77 bcf the previous week and the withdrawal of 12 bcf in the same period last year. US gas storage now exceeds 2.88 tcf, up by 117 bcf from year-ago levels and by 407 bcf above the 5-year average.

Pan EurAsian Enterprises Inc., which tracks LNG imports and regasification, reported the high temperatures in the eastern US, especially the Southeast, are pushing LNG imports and regasification to record levels. "Plans for Aug. 9 show that just slightly under 4 bcf of gas will be sent out from five US LNG import facilities, which is a new record for US import terminals. The Elba Island terminal near Savannah, Ga., is being pushed the hardest, operating at over 100% of normal, stated capacity for 4 of the last 7 days," said company officials.

Analysts in the Houston office of Raymond James & Associates Inc. said the continued influx of LNG imports has been partially offset by declining imports of Canadian gas into the US.

In London, the September IPE contract for North Sea Brent crude dropped 81¢ to $70.99/bbl. August gas oil regained $1.75 to $616.75/tonne.

The average price for OPEC's basket of 11 reference crudes increased by 29¢ to $68.56/bbl on Aug. 8.

Contact Sam Fletcher at [email protected].