MARKET WATCH: Oil stock increase brings down energy prices

Sam Fletcher
Senior Writer

HOUSTON, Aug. 23 -- Energy prices continued to fall Aug. 22 after the Energy Information Administration reported a surprise build in commercial US crude inventories and a continued decline in gasoline stocks during the week ended Aug. 17.

The Department of Energy agency said crude stocks increased 1.9 million bbl to 337.1 million bbl while gasoline inventories dropped 5.7 million bbl to 196.2 million bbl. Distillate fuel inventories increased 1.3 million bbl to 129 million bbl (OGJ Online, Aug. 22, 2007). The new front-month crude contract closed at the lowest price level in 2 months, while natural gas dropped 10% to a 10-month low in anticipation of increased storage.

"After DOE surprised the market by reporting a build in crude inventories, the crude front-month contract slightly declined," said analysts in the Houston office of Raymond James & Associates Inc. "However, traders are still anxiously awaiting Petroleos Mexicanos' confirmation that Hurricane Dean caused little to minimal damage in the Bay of Campeche. Pemex hopes to have 80% of its production from the area back online by early next week and full production by the end of next week." Pemex reported no known damage to any of its production facilities onshore or in the Gulf of Mexico.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, predicted, "The precautionary closing of the Mexican fields and ports will cause delays in crude supply to US Gulf refineries but the system is accustomed to having weather delays in Mexico and this will not cause a state of emergency; especially when crude stocks in the US Gulf are at multiyear high for this time of the year."

Shell Oil Co. reduced production rates at the 340,000 b/d Deer Park, Tex., refinery outside Houston in anticipation of interrupted crude supply due to Hurricane Dean. "There is the potential for delayed oil shipments due to the weather so we are monitoring the situation to determine its potential impact on our operations," said Shell officials Aug. 22.

The US Minerals Management Service reported 19 of the 834 manned platforms in the US sector of the Gulf of Mexico were still evacuated, as were 3 of the 101 rigs. Officials said 24,815 b/d of crude—1.9% of normal production from offshore federal leases—and 83 MMcfd of gas—1.1% of normal production—were still shut in.

Dean, downgraded to a tropical depression, dumped heavy rain across central Mexico after slamming into Mexico's Gulf Coast as a Category 2 storm on Aug. 22.

Jakob said, "With higher than expected crude oil imports and lower than expected gasoline stocks, the US weekly statistics provided two surprises with opposing directional influences. Products cracks have improved but on crude oil the West Texas Intermediate long dated timespreads have weakened and the WTI premium to [North Sea] Brent is weakening on the slight increase in Cushing, Okla., stocks. The natural gas flat price [for the September contract] has now lost 20.4% in 3 days."

Paul Horsnell at Barclays Capital Inc., London, said, "Despite market fears about demand, US gasoline demand has hit a new all-time record in the latest weekly data. Demand for August as a whole is neck-and-neck with July's all-time monthly record, with gasoline inventories remaining very tight."

Analysts with the Société Générale Group in Paris, said, "Gasoline demand is back on track and set a new historical high." US crude stocks rose "on surging imports," they said, while heating oil stocks increased "a little faster than last year."

Energy prices
The new front-month October contract and the November contract dropped 31¢ each Aug. 22 to $69.26/bbl and $69.03/bbl, repectively, on the New York Mercantile Exchange. On the US spot market, WTI at Cushing was down 16¢ to $69.32/bbl. Heating oil for September delivery slipped by 0.37¢ to $1.95/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) increased 2.53¢ to $1.89/gal.

The September natural gas contract fell 23.9¢ to $5.58/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 10.5¢ to $5.81/MMbtu. On Aug. 23, EIA reported the injection a 23 bcf of natural gas into US underground storage for the week ended Aug. 17, compared with injections of 21 bcf the prior week and 57 bcf during the same period a year ago. US gas storage now exceeds 2.9 tcf, up 77 bcf from last year and 333 bcf more than the 5-year average.

In London, the October IPE contract for North Sea Brent crude dipped by 1¢ to $68.70/bbl. The September gas oil contract lost $6.75 to $608/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes declined by 53¢ to $66.58/bbl on Aug. 22.

Contact Sam Fletcher at [email protected].