MARKET WATCH: Crude price climbs above $83/bbl in New York

Sam Fletcher
Senior Writer

HOUSTON, Oct. 12 -- Crude prices rebounded above $83/bbl Oct. 10 to the second-highest front-month price ever on the New York market as government officials reported an unexpected build in gasoline inventories and a decline in oil stocks.

The Energy Information Administration reported commercial US inventories of crude dropped 1.7 million bbl to 320.1 million bbl in the week ended Oct. 5, vs. an expected 1.1 million bbl build (OGJ Online, Oct. 10, 2007). Gasoline inventories increased by 1.7 million bbl to 193 bbl during the same period, vs. expectations of a 400,000 bbl decline. Analysts had expected distillate inventories to drop by 800,000 bbl. Instead, it lost only 600,000 bbl to 135.3 million bbl.

"While US total refined product inventories remain low, seasonally weak demand and rising crude oil prices are squeezing refining margins," said Eitan Bernstein of Friedman, Billings, Ramsey & Co. Inc., Arlington, Va. Refinery activity rose to 87.8% from 87.5% the previous week.

"Prices were pushed higher by the unexpected decline in US crude inventories. However, expectations of softening refinery utilization over the next few weeks, combined with Organization of Petroleum Exporting Countries' plans to increase production by 500,000 b/d in November, may put downward pressure on oil prices going into the winter heating season," said analysts in the Houston office of Raymond James & Associates.

The dollar dropped against most major currencies, but posted gains against the yen.

Meanwhile, benchmark US crudes have been trading at $78-84/bbl for 4 weeks. "Quite interestingly, we have been trading almost the full range in all these weeks," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. It will be "an important test" if West Texas Intermediate can climb out of that range, Jakob said.

In other news, he said, "Turkey is calling home its US ambassador on the back of the Armenian resolution and under the current climate we would expect Turkish lawmakers to pass a vote next week allowing the army to go in pursuit of Kurdish militants in Northern Iraq (OGJ Online Oct. 11, 2007)." Jakob said, "An escalation in the region could put at risk of militancy attack not only the Iraq to Ceyhan (Turkey) pipeline but as well the Baku-Ceyhan pipeline, and we will increase some of the geopolitical risk when and if the Turkish lawmakers authorize further action from the army."

Strikes by the National Union of Petroleum and Natural Gas Workers at six Chevron Corp. facilities in Nigeria, meanwhile, did not last more than a day and apparently didn't affect crude production (OGJ Online, Oct. 11, 2007).

Energy prices
The November contract for benchmark US light, sweet crudes closed at $83.08/bbl, up $1.78 for the day after trading as high as $83.67/bbl Oct. 11 on the New York Mercantile Exchange. The earlier October contract holds the record for the highest front-month crude closing price of $83.32/bbl on Sept. 20. The December contract gained $1.65 to $82.26/bbl on NYMEX. On the US spot market, WTI at Cushing, Okla., was up $1.78 to $83.09/bbl. Heating oil for November delivery increased by 3.01¢ to $2.25/gal on NYMEX. The November contract for reformulated blend stock for oxygenate blending (RBOB) advanced by 3.3¢ to $2.07/gal.

The November natural gas contract dropped 13.4¢ to $6.88/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased by 3¢ to $6.83/MMbtu.

In London, the November IPE contract for North Sea Brent crude increased $1.55 to $80.15/bbl. Gas oil for October was unchanged at $682/tonne.

OPEC's Secretariat in Vienna was closed Oct. 12 for Eid al-Fitr, an Islamic holiday that marks the end of Ramadan, the month of fasting, so there was no report on its basket price.

Contact Sam Fletcher at [email protected].