MARKET WATCH: Gasoline stock build fizzles

Sam Fletcher
Senior Writer

HOUSTON, June 13 -- Futures prices for crude and petroleum products fell June 12, with markets mistakenly anticipating a 2 million bbl rise in gasoline stocks through an increase in US refinery activity.

Instead, US gasoline inventories were unchanged at 201.5 million bbl in the week ended June 8, terminating a string of five consecutive weekly increases, with gasoline stocks still well-below the average range for this time of year.

US inventories
Despite the market's high hopes, the US Department of Energy's Energy Information Administration said June 13 that commercial US crude inventories inched higher by only 100,000 bbl to 342.4 million bbl in the same period. Distillate fuel inventories increased by 300,000 bbl, to 122.6 million bbl, with a drop in heating oil offset by an increase in total diesel stocks. Propane and propylene inventories rose by 200,000 bbl to 36.9 million bbl last week.

US crude imports fell 99,000 b/d to 10.1 million b/d during that period. The input of crude into US refineries dropped by 9,000 b/d to 15.4 million b/d, with units operating at 89.2% of capacity. Gasoline production rose moderately to 9.3 million b/d, while distillate fuel production declined to 4.1 million b/d.

Analysts in the Houston office of Raymond James & Associates Inc. reported little change in crude prices during early trading June 13 prior to release of the weekly EIA report. "High fuel imports and greater refinery utilization are the contributing factors to the build in gasoline inventories," they said.

Despite support from an earlier monthly report by the Paris-based International Energy Agency and "a starting base [price] at $66/bbl" for the July contract for benchmark crude on the New York market, "technical traders did not manage to attract enough momentum to push a further test of the $66.50/bbl resistance" during June 12 trading, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

IEA raised its estimates of global demand for oil products by 250,000 b/d to 84.5 million b/d for 2006 and by 420,000 b/d to 86.1 million b/d for 2007. It also said in its monthly report that world supplies of crude in May fell by 565,000 b/d to 84.9 million b/d. IEA's estimate of non-OPEC production again was trimmed by 110,000 b/d to 50.2 million b/d, resulting in an overall increase of 900,000 b/d (OGJ Online, June 12, 2007).

"The IEA report and tone has become too predictable and as credible as the Organization of Petroleum Exporting Countries," Jakob said. "For OPEC, the supply situation is always under control, and for the IEA we are always facing an acute shortage. The truth is somewhere in the middle, and in the end the market reacts more to the politically neutral weekly statistics from the DOE. The weekly DOE statistics will need to provide some support; otherwise the weekly charts will take a turn for the worse."

Meanwhile, DOE officials said June 12 that hurricanes in the Gulf of Mexico may cut US crude oil production by 13.2 million bbl this year, based on the National Oceanic and Atmospheric Administration's estimate for an active hurricane season of 13-17 named tropical storms, of which 3-5 may develop into major hurricanes.

Energy prices
The July contract for benchmark US light, sweet crudes dropped 62¢ to $65.35/bbl June 12 on the New York Mercantile Exchange. That put the front-month New York crude futures contract in the unusual position of being priced lower than both North Sea Brent crude on the London electronic market and the current average price for OPEC's basket of 11 benchmark crudes. The August contract lost 58¢ to $66.06/bbl. On the US spot market, West Texas Intermediate was down 61¢ to $65.36/bbl. Heating oil for July delivery declined by 1.52¢ to $1.91/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) fell 1.63¢ to $2.14/gal.

The July natural gas contract escalated by 7.4¢ to $7.68/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 2¢ to $7.50/MMbtu. "[Futures] gas prices have not dropped below $7.50/Mcf since the end of May," said Raymond James analysts.

In London, the July IPE contract for North Sea Brent crude dropped 77¢ to $68.79/bbl. Gas oil for June was unchanged at $599/tonne.

The average price for OPEC's crude basket increased 35¢ to $65.39/bbl on June 12.

Contact Sam Fletcher at [email protected].