MARKET WATCHCrude future price again tops $63/bbl

Sam Fletcher
Senior Writer

HOUSTON, May 16 -- After briefly testing the price barrier in the previous trading session, the front-month crude contract closed above $63/bbl May 15 on the New York market, amid worries about continued disruptions of oil production in Nigeria.

It marked the first time in eight sessions that the near-month crude contract finished above that price level, as Royal Dutch Shell PLC confirmed cutting its crude output by 170,000 b/d after Nigerian protestors occupied a hub on the Trans-Niger pipeline. Civil unrest has disrupted some 900,000 b/d of crude shipments from Nigeria, the world's eighth largest oil exporter.

Meanwhile, Valero Energy Corp. said May 16 that processing units at its Houston refinery "are offline and are not producing fuel," due to boiler problems and steam system issues. "We are working diligently to fix the problem, and expect to have production back to normal early next week. In the meantime, we expect a loss of production of about 64,000 b/d of gasoline and 44,000 b/d of distillate, said a company official. "Valero is bringing in product from elsewhere to cover our contracts."

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "Crude oil production problems in West Africa are starting to be as difficult to sum up as gasoline production problems in the US. They also come in the same timeframe as North Sea reduced production due to maintenance and with their high yields of light products will be a further challenge to the US gasoline equation."

Separately, Abdullah al-Badri, secretary general of the Organization of Petroleum Exporting Countries, said oil prices aren't high, considering current supply-demand fundamentals. In its latest monthly report, OPEC noted that crude stocks should be more than sufficient to support fuel demands going into the summer driving season at the end of this month

The American Automobile Association reported US retail prices for regular unleaded gasoline reached an average, all-time high of $3.087/gal this past weekend, up from the previous record of $3.057/gal on Sept. 5, 2005, in the wake of Hurricane Katrina. Earlier the US Energy Information Administration put the average retail regular gasoline price at a record $3.103/gal.

US inventories
EIA said May 16 that commercial US crude inventories increased by 1 million bbl to 342.2 million bbl during the week ended May 11. US gasoline stocks increased for the second consecutive week, up by 1.7 million bbl to 195.2 bbl but still below average for this time of year. Distillate fuel inventories gained 1 million bbl to 119.8 million bbl, with a rise in heating oil compensating for a slight decline in diesel. Propane and propylene inventories jumped by 2.8 million bbl to 31.5 million bbl during the same week.

Imports of crude into the US fell by 659,000 b/d to 10.3 million b/d during the same period. However, the input of crude into US refineries rose by 34,000 b/d to 15.3 million b/d, with refineries operating at 89.5% of capacity. Gasoline production increased to 9.1 million b/d while distillate fuel production declined to 4.1 million b/d.

Energy prices
The June and July contracts for benchmark US light, sweet crudes climbed 71¢ each to $63.17/bbl and $64.60/bbl, respectively, May 15 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was up by 71¢, to $63.18/bbl. Heating oil for June delivery increased 2.34¢ to $1.89/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) inched up 0.04¢ to remain virtually unchanged at $2.30/gal.

The June natural gas contract lost 8.8¢ to $7.86/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 22¢ to $7.64/MMbtu. "On the natural gas side, prices have fallen from their year-to-date high on [May 11] in response to forecasts of milder weather across the US," said analysts in the Houston office of Raymond James & Associates Inc. "Additionally, for the week of May 18, LNG imports are expected to be a record 4 bcfd, an increase of 500 MMcfd from the prior week and an increase of 1.6 bcfd from the same week last year," they said.

In London, the June IPE contract for North Sea Brent crude escalated by $1.28 to $68.11/bbl. "Brent has been outperforming [benchmark US crudes] but finds itself now within daily distance of the $68.50 to $69/bbl resistance it has tried the whole of April to break, with no success so far on a closing basis," said Jakob. "The Brent resistance is a key level to watch. Expectations of a build in gasoline stocks is keeping RBOB under some pressure but is only correcting an extreme crack, and we remain still far from the key $2.20/gal support line."

The gas oil contract for June inched up by $1 to $593.25/tonne.

The average price for OPEC's basket of 11 benchmark crudes dropped 5¢ to $63.63/bbl on May 15.

Contact Sam Fletcher at samf@ogjonline.com.