MARKET WATCH: Supply worries boost energy prices

Crude and petroleum products prices escalated June 13 as US gasoline inventories stabilized after five consecutive weekly increases, fanning traders' latent fears of possible fuel shortages this summer.

Sam Fletcher
Senior Writer

HOUSTON, June 14 -- Crude and petroleum products prices escalated June 13 as US gasoline inventories stabilized after five consecutive weekly increases, fanning traders' latent fears of possible fuel shortages this summer.

Rather than the 1.5-2 million bbl increase anticipated by some, the US Energy Information Administration reported gasoline stocks were unchanged at 201.5 million bbl in the week ended June 8. 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 (OGJ Online, June 13, 2007).

"The bullish surprise in the US weekly statistics report was that there was no bearish surprise," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "On statistics as well as on prices it is 'status quo ante.' Given the low gasoline stocks a status quo is, however, a supportive factor."

Eitan Bernstein of Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., said, "US gasoline inventories typically rise at this time of year in preparation for July-August peak demand; with stocks now 11.6 million bbl (5%) below comparable year-ago levels, we believe that the current high refining margin environment is likely to continue with any unexpected supply disruptions producing price spikes."

Refinery utilization dipped to 89.2% from 89.6% in the week ended June 8 vs. a consensus expectation for a 0.7% increase. Gasoline imports declined by 350,000 b/d (23%) in the same period. Demand dropped by 355,000 b/d for diesel; 90,000 b/d for jet fuel; 15,000 b/d for residual fuel oil, but only 5,000 b/d for gasoline during that period. Those losses were partly offset by 355,000 b/d increased demand for heating oil. "US gasoline demand has averaged 1.4% above comparable year-ago levels during the past 4 weeks, in line with the 1.5% long-term growth rate, despite the high $3.15/gal average US retail price," said Bernstein.

Jakob said, "The deficit is in gasoline, but it is heating oil that is leading the oil complex. The crack in gasoline did not improve yesterday but surged in heating oil."

Paul Horsnell at Barclays Capital Inc., London, reported, "Aggregate US oil product market conditions are at their tightest since October 2005, with a diesel inventory overhang offset by large gasoline and heating oil deficits."

Energy prices
The July contract for benchmark US light, sweet crudes jumped up 91¢ to $66.26/bbl June 13 on the New York Mercantile Exchange. The August contract gained 87¢ to $66.93/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 91¢ to $66.27/bbl. Heating oil for July delivery climbed by 4.81¢ to $1.96/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) increased 2.03¢ to $2.16/gal.

The July natural gas market lost 7.4¢—exactly the same amount it had gained in the previous NYMEX session—to $7.61/MMbtu on June 13. On the US spot market, however, gas at Henry Hub, La., continued to climb, up 9¢ to $7.59/MMbtu.

EIA reported the injection of 92 bcf of natural gas into US underground storage in the week ended June 8. That was below Wall Street consensus and compared with injections of 110 bcf the prior week and 77 bcf during the same period last year. US gas storage is now at 2.26 tcf, down 131 bcf from a year ago, but 365 bcf above the 5-year average.

In London, the July IPE contract for North Sea Brent crude escalated by $1.15 to $69.94/bbl. The July contract for gas oil climbed by $8.25 to $610/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 17¢ to $65.56/bbl on June 13.

Contact Sam Fletcher at samf@ogjonline.com.

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