MARKET WATCHFalling gasoline futures market pulls down energy prices

Sam Fletcher
Senior Writer

HOUSTON, July 13 -- Energy prices fell Monday, pushed lower by a minor panic among traders over a fire at Statoil ASA's 200,000 b/d Mongstad refinery.

Initial reports that the fire cut the refinery's gasoline production by half and that Statoil had halted gasoline exports caused the August gasoline contract to jump to $1.365/gal on the New York Mercantile Exchange. Although Statoil exports relatively little gasoline to the US, world inventories are so tight that any disruption of refining capacity is bound to have market repercussions.

However, Statoil later announced that the refinery's gasoline production had returned almost to normal and that the company would honor export commitments. That triggered a late sell-off of gasoline futures that caused NYMEX prices to tumble to $1.3002/gal for August delivery, down 2.13¢ for the day.

Falling gasoline prices pulled down other commodities in the futures market Monday. Meanwhile, the International Energy Agency in Paris said Tuesday that the growth of global oil demand will slow to a relatively high 1.8 million b/d in 2005 from a record 2.5 million b/d this year. IEA predicts that world demand for oil will grow to 83.2 million b/d in 2005, from 81.4 million b/d this year.

Commercial oil inventories among members of the Organization for Economic Cooperation and Development rose by 33 million bbl to 2.5 billion bbl in May, 12 million bbl more than last year. "While crude stocks returned to more comfortable levels in the OECD, product stocks remained tight. Days of forward demand cover in May was depressed at 51.7 days, little changed from that in April and similar to the low cover level of 2003," said IEA in its monthly report.

Crude production among the Organization of Petroleum Exporting Countries averaged 28.6 million b/d in June, up by 635,000 b/d from May, "despite a 325,000 b/d reduction from Iraq," IEA said.

"Concerns over strong demand and supply disruption issues prevailed over higher OPEC output in June," said IEA officials. "Strength in transportation fuels reemerged, and concerns remain that refiner's focus on gasoline, diesel, and jet fuel could delay production of heating oil ahead of the winter."

Energy prices
The August contract for benchmark US sweet, light crudes dropped by 46¢ to $39.50/bbl Monday on NYMEX, while the September position lost 50¢ to $39.64/bbl. On the US spot market, West Texas Intermediate was down by 48¢ to $39.50/bbl.

Heating oil for August delivery declined by 2.03¢ to $1.0606/gal on NYMEX. Natural gas for the same month fell by 28.4¢ to $5.86/Mcf as meteorologists scaled back earlier forecasts of hot weather for this week.

In London, the August contract for North Sea Brent crude lost 42¢ to $36.63/bbl Monday on the International Petroleum Exchange. Gas oil for July delivery was unchanged at $345.40/tonne. The August natural gas contract inched up by 0.95¢ to the equivalent of $4.05/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes declined by 22¢ to $35.83/bbl Monday. Meanwhile, OPEC Conference President Purnomo Yusgiantoro was quoted Tuesday as saying the group has no plans to consider another production hike in addition to the 500,000 b/d increase in its output quota to 26 million b/d effective Aug. 1. Indications are that the 10 OPEC countries that, unlike Iraq, are still subject to quota limits on production are already exceeding the current cap of 25.5 million b/d. Iraq is still striving to come back to its prewar production levels but has been held back by sabotage of its pipeline systems.

Contact Sam Fletcher at [email protected]