MARKET WATCHCrude futures prices decline ahead of inventory increase

Sam Fletcher
Senior Writer

HOUSTON, Mar. 10 -- Energy futures prices generally continued to decline Tuesday, with profit taking among smaller players apparently driving a downward correction, analysts said.

Major traders remained on the sidelines during Tuesday's session on the New York Mercantile Exchange, apparently awaiting the release Wednesday of the latest data on US inventories of crude and petroleum products.

US inventories
The US Energy Information Administration reported early Wednesday that commercial US crude inventories jumped by 3.7 million bbl to 279.5 million bbl during the week ended Mar. 5. However, crude stocks were still 22.1 million bbl below the 5-year average for that time of year, EIA officials said.

US distillate stocks rose by 1.4 million bbl to 112.7 million bbl during the same period, with a drop in diesel fuel more than offset by a rise in heating oil, officials reported. However, US gasoline inventories fell by 1.6 million bbl last week and are down by 10.4 million bbl below the 5-year average for that period.

EIA's weekly data were "very soft for heating oil and crude, while gasoline conditions remain strong. Gasoline demand is riding far above last year, and production is starting to turn down," said Paul Horsnell, head of energy research, Barclays Capital Inc., London.

In an unusual move, Horsnell predicted Wednesday that petroleum prices are about to weaken, while at the same time Barclays raised its 2004 price forecasts by $1.90 to an average $32/bbl for US benchmark crudes and by $1.70 to an average $29.30/bbl for North Sea Brent oil.

Evidence of a pending price break "does not come from crude oil prices, which have not yet fallen off their perch or made any decisive break downwards," said Horsnell. "However, in the oil product markets, there is more convincing evidence of a weakening. Over the past week, gasoline crack spreads have fallen sharply. All of the upward progress made by the April crack over the past 5 months has been unwound in just a week."

Still, he said, "Increasingly, we are becoming convinced that the move down will be less sharp than we had first imagined." Horsnell said, "Part of the reason why we do not expect prices to get much traction downward in coming months is that the gasoline situation has not improved."

Inputs into US oil refineries increased by 80,000 b/d, averaging more than 14.7 million b/d in the week ended Mar. 5. Decreases on the East Coast and in the Midwest were offset by increases elsewhere, with the largest increase occurring in the isolated West Coast market, EIA reported.

Imports of crude into the US declined by 49,000 b/d to nearly 9.8 million b/d during the same week. "A large decrease into the West Coast was nearly offset by a large increase into the Gulf Coast," said EIA officials. Imports from Saudi Arabia apparently "were down significantly last week while imports from Venezuela increased substantially," they said.

Venezuela
Venezuelan President Hugo Chávez reiterated Venezuela's desire to continue commercial relations with the US and other countries "since we want peace, respect, and integration." Chávez's remarks came during a ceremony granting a license to ChevronTexaco Corp. to explore and exploit natural gas reserves in Block 3 off the country's northeastern coast.

Chávez earlier had indicated that Venezuela would take action if the US intervened in the political turmoil that recently surfaced in that country after a government election committee reported too few legal signatures on petitions for an election to recall Chávez from office.

Meanwhile, Petroleos de Venezuela SA and the state news agency Venpres announced that Aires Barreto resigned as vice-president of PDVSA for "personal reasons." To offset what was described as "distortions" about Barreto's resignation, Venpres published a letter that he sent Mar. 6 to PDVSA's board of directors. The government will soon pick his replacement on the PDVSA board, Venpres reported.

Energy prices
The April contract for benchmark US light, sweet crudes lost 29¢ to $36.28/bbl Tuesday on NYMEX, while the May contract dropped 37¢ to $35.45/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., fell by 80¢ to $36.28/bbl.

Gasoline for April delivery plunged by 2.42¢ to $1.0588/gal Tuesday on NYMEX. Heating oil for the same month was down by 0.66¢ to 89.24¢/gal.

However, the April natural gas contract rebounded by 4.5¢ to $5.44/Mcf Tuesday on NYMEX. "But the market is still stuck in a technical range, waiting for Thursday's weekly [natural gas] inventory report for direction," said analysts Wednesday at Enerfax Daily.

In London, the April contract for Brent crude lost 54¢ to $32.23/bbl Tuesday on the International Petroleum Exchange. Gas oil for March delivery declined by $4.75 to $273.50/tonne. However, the April natural gas contract inched up by 0.93¢ to the equivalent of $3.88/Mcf on IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 29¢ to $32.30/bbl Tuesday.

Contact Sam Fletcher at [email protected]