MARKET WATCH: Crude futures dip; products prices rise

Oil futures dipped lower Oct. 3 with an unexpected build in US crude inventories, but declines in petroleum product stocks pushed up prices for heating oil and gasoline.

Oct 4th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Oct. 4 -- Oil futures dipped lower Oct. 3 with an unexpected build in US crude inventories, but declines in petroleum product stocks pushed up prices for heating oil and gasoline.

The Energy Information Administration reported US crude inventories increased by 1.2 million bbl to 321.8 million bbl during the week ended Sept. 28, vs. an expected decline of 800,000 bbl. In that same week, gasoline stocks dipped by 100,000 bbl to 191.3 million bbl, well below average for that time of year. Distillate fuel inventories dropped 1.2 million bbl to 135.9 million bbl (OGJ Online, Oct. 3, 2007). Consensus expectations among Wall Street analysts were for no change in gasoline and an increase of 900,000 bbl in distillate inventories.

"For the second day in a row the volatility has remained low and trading was focused on either side of $80/bbl [in the New York market] while hoping that someone else would carry the momentum," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Open interest in the crude futures market "is showing very modest increases, positions are being reshuffled, but there is little evidence of new flows [of investment] rushing into oil. The corrective patterns in other commodities, a stronger dollar, and weaker equities are also not helping," he said.

The Société Générale Group in Paris said, "It is turnaround season, and crude stocks built in line with normal pattern."

Analysts at KBC Process Technology Ltd. in Surrey, UK, reported, "In the current shoulder season between strength in demand for gasoline and heating oil, we expect the impending end of hurricane threats to weigh on oil prices. KBC is of the view that crude oil prices will not hold above $80/bbl, and this will lead to liquidation of speculative length and a sharp drop in oil prices, sooner rather than later."

However, Paul Horsnell at Barclays Capital Inc. in London, said, "Despite general perceptions, the Atlantic hurricane season has already been a fairly violent one in that, for the first time, two category 5 hurricanes have made landfall in the same season. The disruptions caused by hurricane activity have, however, been concentrated in Mexico rather than in the US gulf. While disruptions in Mexican output matter just as much as in terms of global balances, in terms of market perceptions and psychology, they do perhaps tend to have a less direct effect."

Energy prices
The November contract for benchmark US sweet, light crudes slipped by 11¢ to $79.94/bbl Oct. 3 on the New York Mercantile Exchange. The December contract dipped 2¢ to $79.02/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., lost 8¢ to $79.98/bbl. Heating oil for November delivery escalated by 1.64¢ to $2.18/gal on NYMEX. The November contract for reformulated blend stock for oxygenate blending (RBOB) continued to rise, up 1.31¢ to $2/gal.

The November natural gas contract lost 15¢ to $7.28/MMbtu on NYMEX. On the US spot market, gas at Henry, La., climbed by 28.5¢ to $6.94/MMbtu. EIA reported Oct. 4 the injection of 57 bcf of natural gas into US underground storage in the week ended Sept. 28. That amount was below the consensus of Wall Street analysts and compared with injections of 74 bcf the prior week and 73 bcf during the same period last year. US gas storage now exceeds 3.26 tcf, which is 54 bcf below the amount of gas in storage a year ago, but 227 bcf above the 5-year average.

In London, the November IPE contract for North Sea Brent crude dropped 19¢ to $77.19/bbl. Gas oil for October gained $3.25 to $678.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 30¢ to $74.96/bbl on Oct. 3.

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