MARKET WATCH: Crude price falls despite Prudhoe Bay disruption

The front-month crude contract dropped below $65/bbl May 22 on the New York futures market as traders ignored BP PLC's loss of 100,000 b/d of oil production from Prudhoe Bay field and focused instead on an expected build in US gasoline inventories.

May 23rd, 2007

Sam Fletcher
Senior Writer

HOUSTON, May 23 -- The front-month crude contract dropped below $65/bbl May 22 on the New York futures market as traders ignored BP PLC's loss of 100,000 b/d of oil production from Prudhoe Bay field and focused instead on an expected build in US gasoline inventories.

The Prudhoe Bay field was partially shut in May 22 after 20 bbl of water produced from the field leaked through a "pencil-sized" hole in a pipeline and was contained by BP. That field normally produces 400,000 b/d. That field was partially shut in last August-October, hiking oil prices as BP repaired corroded pipelines. The latest problem should be repaired within a week, officials said.

Meanwhile, the US sent nine warships through the Strait of Hormuz in a major show of force May 23. "The ships are anticipated to commence exercises after traversing the waters to reassure neighboring countries of US commitment to localized security (the move is said to be a symbolic demonstration, as opposed to an inciting flex of muscle)," said analysts in the Houston office of Raymond James & Associates Inc.

The US National Oceanic and Atmospheric Administration forecast a 75% chance that the 2007 Atlantic hurricane season will be above average, with 13-17 tropical storms anticipated and 7-10 of these expected to develop into hurricanes and 3-5 expected to become major hurricanes.

US inventories
The Energy Information Administration said May 23 that US gasoline stocks increased by 1.5 million bbl to 196.7 million bbl in the week ended May 18, still well-below average just a week before the start of the US summer driving season over the Memorial Day weekend.

Commercial US crude inventories rose by 2 million bbl to 344.2 million bbl, while distillate fuels gained 500,000 bbl to 120.3 million bbl in the same period, with an increase in ultralow-sulfur diesel fuel outweighing declines in heating oil and low-sulfur diesel, EIA reported. Propane and propylene inventories rose by 1.4 million bbl to 32.9 million bbl in the same week.

Imports of crude into the US grew by 560,000 b/d to 10.9 million b/d during that week. The input of crude into US refineries increased by 351,000 b/d to 15.7 million b/d, with refineries operating at 91.1% of capacity. Gasoline production increased to 9.2 million b/d and distillate fuel production advanced to 4.2 million b/d.

Energy prices
The expiring June contract for benchmark US light, sweet crudes traded at $64.80-66.35/bbl May 22 on the New York Mercantile Exchange before closing at $64.97/bbl, down $1.30 for the day. That marked the biggest 1-day price decline since May 4. The new front-month July contract lost $1.36 to $65.51/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.30 to $64.98/bbl. Heating oil for June delivery dropped 4.37¢ to $1.91/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) fell by 9.5¢ to $2.31/gal. Meanwhile, the American Automobile Association reported the average US retail price for regular gasoline increased by 1.3¢ to a new record high of $3.209/gal on May 22.

The June natural gas contract fell 11.2¢ to $7.80/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 4¢ to $7.62/MMbtu.

In London, the July IPE contract for North Sea Brent crude dropped 97¢ to $69.52/bbl. The June gas oil contract slipped by 50¢ to $603.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 40¢ to $66.50/bbl on May 22.

Contact Sam Fletcher at samf@ogjonline.com.

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