MARKET WATCH: Crude contract hits $89/bbl high

The benchmark November crude contract climbed to a record $89/bbl in intraday trading Oct. 17 in New York before closing at $87.40/bbl, down 21¢ for the day.

Oct 18th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Oct. 18 -- The benchmark November crude contract climbed to a record $89/bbl in intraday trading Oct. 17 in New York before closing at $87.40/bbl, down 21¢ for the day on reports of unexpected large builds in US oil and gasoline inventories.

The Energy Information Administration reported commercial US stocks of crude jumped by 1.8 million bbl to 321.9 million bbl during the week ended Oct. 12, much more than Wall Street analysts' consensus of an 800,000 bbl increase. Gasoline stocks shot up by 2.8 million bbl to 195.8 million bbl in contrast to a consensus increase of 300,000 bbl. Distillate fuel inventories increased by 1 million bbl to 136.3 million bbl, vs. a consensus loss of 700,000 bbl.

"For the second week in a row, the weekly oil statistics are not particularly bullish and rather illustrative of a balanced market," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "But there is such a schizophrenic fear factor in the market that anything balanced is being translated as 'super-tight.' The fear factor is, however, not something that can be fully discounted when the French foreign minister talks of the war with Iran or when President [George W.] Bush in his press conference of yesterday mentions 'World War III' if Iran gets the A-Bomb. These statements are part of the psychological warfare between the US and Iran but translates in an additional risk premium into oil futures."

However, the Societe Generale Group in Paris advised, "The bearish first reading [of government data] must be forgotten: crude built, but mainly in the isolated Petroleum Administration for Defense District 5 [PADD 5, encompassing the US West Coast, Alaska, and Hawaii]." Moreover, last week's increase in crude stocks was "the lowest build in at least 5 years for this time of year," said SGG analysts. "Indeed, refinery runs were higher than the past 5 years. However, most of the build (1.4 million bbl) was located on the West Coast on a sharp fall of PADD 5 [refinery] utilization rate, while stocks were quite steady in the rest of the US."

The increase in gasoline inventories consisted of a 2.7 million bbl blendstocks build, mainly in PADD 3 [the US Gulf Coast], while finished gasoline stocks remained relatively steady in all five PADDs, the analysts reported.

Meanwhile, Turkey's parliament approved a measure that would allow its army to raid militant Kurds in northern Iraq. No attack appears imminent, however, and US President Bush has urged restraint (OGJ Online, Oct. 17, 2007).

Energy prices
The December contract for benchmark US sweet, light crudes dropped 39¢ to $86.19/bbl Oct. 17 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 21¢ to $87.41/bbl. The November contract for reformulated blend stock for oxygenate blending (RBOB) fell 2.71¢ to $2.15/gal on NYMEX. Heating oil for the same month lost 1.98¢ to $2.32/gal.

The November natural gas contract gained 9.1¢ to $7.46/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 16¢ to $7.11/MMbtu. EIA reported the injection of 39 bcf of natural gas into US underground storage during the week ended Oct. 12. That was below Wall Street's consensus and down from injections of 73 bcf the previous week and 53 bcf during the same period in 2006. US gas storage is now at 3.375 tcf, which id down 59 bcf from year-ago levels but 213 bcf above the 5-year average.

In London, the December IPE contract for North Sea Brent crude lost 42¢ to $83.13/bbl. November gas oil gained $5.25 to $728/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed 27¢ to $81.09/bbl on Oct. 17.

Contact Sam Fletcher at samf@ogjonline.com.

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