MARKET WATCH: Gas continues to decline as oil price flattens

Oil prices were “roughly flat” Sept. 2 in New York as the broader equities market continued to retreat and a Department of Energy agency reported “a somewhat bullish draw” on petroleum inventories, said analysts in the Houston office of Raymond James & Associates Inc.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 3 -- Oil prices were “roughly flat” Sept. 2 in New York as the broader equities market continued to retreat and a Department of Energy agency reported “a somewhat bullish draw” on petroleum inventories, said analysts in the Houston office of Raymond James & Associates Inc.

“Natural gas finished its fifth session in the red as gas prices continue to set new 7-year lows,” they said.

DOE’s Energy Information Administration reported Sept. 3 the injection of 65 bcf of gas into US underground storage in the week ended Aug. 28. That raised the working gas in storage to more than 3.32 tcf, which is 489 bcf more than in the same period last year and 501 bcf above the 5-year average.

EIA earlier reported commercial US inventories of crude dipped by 400,000 bbl to 343.4 million bbl in that same week, far less than the American Petroleum Institute’s report of a 5.1 million bbl draw. US gasoline inventories decreased 3 million bbl to 205.1 million bbl, the EIA said. Distillate fuel stocks increased 1.2 million bbl to 163.6 million bbl.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “One positive point for crude is the Chinese increased the price for diesel by 300 yuan ($44) a ton vs. the last increase of 600 yuan and less than the 500 yuan estimated. A lower price increase is obviously more supportive of artificially maintaining Chinese crude demand, and since the market seems to be taking most of its cues and direction from China, this should be a positive for crude.”

Olivier Jakob at Petromatrix, Zug, Switzerland, reported, “The API and the DOE are now fully in line on crude oil but the API is lower by 1.8 million bbl on distillate and 1.8 million bbl higher on gasoline. Overall for all crude and products, there was a stock reduction of 4.5 million bbl during the week (down 637,000 b/d) and this is now the third consecutive week with overall stock draws. In the month to Aug. 28, there was an overall 19.2 million bbl reduction of stocks (down 686,000 b/d) in the US.”

Jakob warned, “Traders [who] are looking at the DOE unrevised numbers continue to overly underestimate the US demand recovery for products vs. a year ago. On the basis of the unrevised data, US demand on the 4-week average would be lower by 1 million b/d, but there were massive subsequent revisions to the data of last year; hence on the basis of the revised numbers US demand for petroleum products is now at par (up 10,000 b/d) to the levels of a year ago. The DOE subsequently revised the August 2008 demand lower by 970,000 b/d and the September demand [down] 992,000 b/d; hence comparing the current demand numbers to the unrevised numbers of last year will continue to make for an underestimation of the US growth in demand during September.”

Total SA announced it is shutting down the 137,000 b/d Dunkirk refinery until further notice. “This follows Valero Energy Corp.’s cold shut-down of Aruba’s 235,000 b/d refinery,” said Jakob. “The expansion of refinery capacity in the Far East is forcing the shut-down of refinery capacity in the Atlantic Basin, but this translates into a longer time chain for supply security in products and could start eating into the product stocks afloat on the water (which are still at hefty levels). Despite US refinery runs increasing in the week by 468,000 b/d to levels only 307,000 b/d lower than the similar week last year, production of distillate is still down 398,000 b/d in the week vs. a year ago as the yields are maintained at the levels of 2007 rather than of 2008.”

He said, “The market reaction to the DOE report will not help to change this trend as it translated in a strengthening of the gasoline crack. Distillate demand in the US might still be down 267,000 b/d (4-week average) vs. a year ago, but there has been a supply side response through the change of yields, which is making for an even greater drop in distillate production (478,000 b/d, 4-week average).

Jakob cautioned, “We will need to continue to monitor the advance of Tropical Storm Erika that could still provide a premium for the long weekend. Erika has weakened and is less organized than yesterday, but the models disagree as to what it does once closer to Hispaniola.”

Meanwhile, the China Shanghai Composite Index was up 5% in overnight action, “so that will lessen the noise from the doom-and-gloomers [who] have transformed lately the Shanghai Index into the World Index,” said Jakob. Crude prices dropped 4% on Aug. 31, wiping out gains for the month in the New York market in response to a 6.7% decline in Shanghai Index (OGJ Online, Aug. 31, 2009).

Energy prices
The October contract for benchmark US sweet, light crudes traded at $67.05-68.80/bbl Sept. 2 on the New York Mercantile Exchange before closing unchanged for the day at $68.05/bbl. The November contract dipped by 4¢ to $68.68/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., also was unchanged at $68.05/bbl. Heating oil for September slipped 0.84¢ to $1.75/gal on NYMEX. However, reformulated blend stock for oxygenate blending (RBOB) for the same month gained 2.64¢ to $1.81/gal.

The October natural gas contract dropped 10.6¢ to $2.72/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 10¢ to $2.27/MMbtu.

In London, the October IPE contract for North Sea Brent crude declined 7¢ to $67.66/bbl. Gas oil for September lost $10.50 to $555.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell $1.47 to $66.64/bbl on Sept. 2.

Contact Sam Fletcher at samf@ogjonline.com.

More in Economics & Markets