MARKET WATCHFears of gasoline shortage raise prices

Energy prices rebounded May 10 as worries about possible fuel shortages in the approaching summer driving season pushed up prices for reformulated gasoline blendstock, lifting other commodities with it.

May 11th, 2007

Sam Fletcher
Senior Writer

HOUSTON, May 11 -- Energy prices rebounded May 10 as worries about possible fuel shortages in the approaching summer driving season pushed up prices for reformulated gasoline blendstock (RBOB), lifting other commodities with it.

The June RBOB contract continued to rally, escalating by 9.52¢ to $2.33/gal on the New York Mercantile Exchange.

With "some new glitches in US upgrading capacity" and reports of crude production shut in at Nkossa oil field in the Republic of the Congo as a result of a fire, "market participants are taking no chance on gasoline," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Jakob said: "The Nkossa crude has excellent gasoline yields. The gasoline production capacity is taking a double whammy of restrained refinery capacity and restrained crude feedstock capacity. The North Sea June [production] program is being issued and will be lower due to maintenance work, and although this was expected, it will give further momentum to any new disruption in Nigeria. The gasoline crack is in uncharted territory but with an inverted North Sea Brent and West Texas Intermediate [price difference for June contracts] will need to remain higher than historical standards in order to attract imports, which for now are slow to come."

In a May 11 report from the Houston office of Raymond James & Associates Inc., analysts said, "Crude is up modestly this morning, supported by fresh supply disruptions in Africa, adding to the laundry list that includes concerns about US gasoline supply, continued attacks in Nigeria, and Atlantic production going into the hurricane season."

Meanwhile, the International Energy Agency in Paris said it expects a large increase in crude demand in June and has urged the Organization of Petroleum Exporting Countries to raise production to prevent a sharp decline in oil stocks among consumer nations. "Currently, the IEA believes there will be a 1.6 million b/d 'crank up' in demand in June, which is further intensified by constraints at refineries," said Raymond James.

Energy prices
The June contact regained 26¢ to $61.81/bbl on NYMEX, while the July contract recouped 27¢ to $63.43/bbl. On the US spot market, WTI at Cushing, Okla., was up 26¢ to $61.82/bbl. Heating oil for June delivery increased 4.67¢ to $1.86/gal.

The June natural gas contact inched up 0.6¢ to $7.23/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped by 11.5¢ to $7.63/MMbtu.

In London, the June IPE contract for North Sea Brent crude gained 59¢ to $65.79/bbl. But gas oil for May was unchanged at $570/tonne.

The average price for OPEC's basket of 11 benchmark crudes increased by 11¢ to $62.23/bbl on May 10.

Contact Sam Fletcher at samf@ogjonline.com.

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