MARKET WATCH: Large draw of oil stocks boosts energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 20 -- The front-month crude contract jumped above $72/bbl Aug. 19 in the New York market after the US Energy Information Administration reported the largest drawdown of crude inventories in 15 months.

EIA said commercial US inventories of benchmark crudes plunged a whopping 8.4 million bbl to 343.6 million bbl in the week ended Aug. 14. Gasoline stocks fell 2.1 million bbl to 209.8 million bbl in the same period. Distillate fuel inventories declined by 700,000 bbl to 161.6 million bbl (OGJ Online, Aug. 19, 2009). The American Petroleum Institute earlier reported an unexpected drop of 6.1 million bbl in crude stockpiles. The Wall Street consensus was for a 1.2 million bbl increase in crude, a 1 million bbl drop in gasoline, and a 700,000 bbl increase in distillate inventories.

The EIA report “not only confirmed the API reported crude stock draw but started as well to reduce the divergence,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “This confirms once more that it is wrong to discount the leading indicator potential of the API statistics,” he said. EIA numbers are now “more or less at par to the API on crude oil and distillates but increasingly lower than the API on gasoline stocks,” Jakob said.

Analysts in the Houston office of Raymond James & Associates Inc. said, “While the government report did show a strong uptick in demand, the draw in inventories was mainly a function of a steep drop in crude imports. With Cushing[, Okla.] inventories at historically high levels, it is possible that companies have chosen to store crude in offshore tankers in hopes of higher prices, artificially lowering US imports.”

Imports of crude into the US fell 1.4 million b/d to 8.1 million b/d last week. Input of crude into US refineries, however, increased 139,000 b/d to 14.5 million b/d with units increasing utilization by 0.52% to 84% of capacity. Gasoline production increased to 8.9 million b/d, while distillate fuel production decreased to 3.8 million b/d.

In New Orleans, analysts at Pritchard Capital Partners LLC reported, “Crude closed up 62% on the year, reaching its highest levels since June 11 and reversing its earlier pullback on concerns over the Chinese economic recovery as the dollar fell for the second consecutive day.”

As a result of the bullish EIA and API reports and continued weakness in the dollar, oil was testing its highs for this year in early trading Aug. 20. The front-month crude contract will expire at the close of trading Aug. 20 in New York. “Technical traders should be focused on whether crude can break resistance at $73/bbl,” advised Pritchard Capital Partners. “If crude breaks $73/bbl, we expect it could test $75/bbl, last reached in late October 2008. Prices will continue to be influenced by the dollar and economic data.”

Raymond James analysts noted, “Natural gas stopped its 9-day slide yesterday, but closed up less than 1% after struggling to find any kind of substantial rally.” EIA reported the injection of 52 bcf of natural gas into US underground storage in the week ended Aug. 14, slightly below expectations of a 56-57 bcf increase. That put working gas in storage above 3.2 tcf, up by 562 bcf from year-ago levels and 513 bcf above the 5-year average. Raymond James analysts said, “With injections becoming physically more difficult with storage at 3.2 tcf, the inventory numbers become increasingly harder to analyze for true supply-demand fundamentals.

Hurricane watch
In other news, Jakob said, “We want to maintain a [Hurricane] Billy premium on products. The hurricane is a very strong Category 4, and while it will lose some strength in its journey northward it could still get dangerously close to the eastern shores of Canada as a Category 2 or 3.”

Current average forecasts take the storm “very close” to the 90,000 b/d Dartmouth refinery at Halifax and then towards 115,000 b/d Come By Chance refinery in Newfoundland. Irving Oil’s 300,000 b/d Saint John refinery in New Brunswick—Canada’s largest—is not on the average forecast storm trajectory. “But given that some models are diverging more to the west, we would not discount the risk on Irving’s refinery yet,” Jakob said. “There are some reports of Irving already shutting dome some units, but this more related to maintenance than to storm preparations. All together, this still makes about 500,000 b/d of key refining assets for the US Northeast to remain under watch for a potential weekend impact.”

On Aug. 20, the US Department of Labor reported first-time claims for unemployment benefits rose unexpectedly for the second consecutive week, up a seasonally adjusted 576,000 applications last week from a revised figure of 561,000 the previous week and exceeding Wall Street economists’ expectations of 550,000 new claims. That indicates jobs remain scarce despite other data that show the economy is stabilizing.

Energy prices
The September contract for benchmark US sweet, light crudes traded at $68.05-72.80/bbl Aug. 19 before closing at $72.42/bbl, up $3.23 for the day on the New York Mercantile Exchange. The October contract climbed $2.74 to $73.83/bbl. On the US spot market, West Texas Intermediate at Cushing was up $3.23 to $72.42/bbl. Heating oil for September jumped 5.37¢ to $1.92/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month continued climbing, up 3.44¢ to $2.03/gal.

The September natural gas contract hit a new low for the year at $3.049/MMbtu in intraday trading on NYMEX before closing at $3.12/MMbtu, up 2.3¢ for the day. On the US spot market, gas at Henry Hub, La., fell 8¢ to $3.04/MMbtu.

In London, the October IPE contract for North Sea Brent crude increased $2.22 to $74.59/bbl. The September gas oil contract jumped $18.25 to $600.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.66 to $71.13/bbl on Aug. 19.

Contact Sam Fletcher at samf@ogjonline.com.