Crude prices dip on IEA demand forecast

Nov. 13, 2006
Energy prices on futures markets have swung widely recently.

Paula Dittrick
Senior Staff Writer

Energy prices on futures markets have swung widely recently.

Comments about possible additional production quota cuts by the Organization of Petroleum Exporting Countries drove prices higher on Nov. 6. But later in the week, the International Energy Agency cut its world oil demand growth estimates, and prices dropped.

The December contract for benchmark US sweet, light crudes increased $1.33/bbl on Nov. 9 on the New York Mercantile Exchange to $61.16/bbl—the highest front-month price in 2 weeks.

But oil prices retreated Nov. 10 after the IEA's monthly report in which it trimmed its 2006 global oil demand growth to 1.1%, or an average of 84.5 million b/d, from its previous forecast of 1.2% oil demand growth. EIA kept its 2007 demand growth forecast at 1.7%.

The IEA estimate of oil inventories in Organization for Economic Cooperation and Development member countries was high, representing 55 days of forward demand cover. Analysts said this was the highest figure for the third quarter since 1991.

On Nov. 6, the December NYMEX crude contract broke above $60/bbl for the first time in days, settling at $60.02/bbl after Saudi Oil Minister Ali al-Naimi said OPEC was likely to trim production if global inventories remain "very high" when the cartel meets Dec. 14.

Separately, Qatari Oil Minister Abdullah al-Attiyah said markets were oversupplied. "If the market is still unbalanced, we will make another cut, but I cannot predict what the quantity will be," he told Reuters.

On Nov. 7, OPEC Pres. and Nigerian Oil Minister Edmund Daukoru told reporters that the cartel has no target price band.

"OPEC doesn't have a rigid floor," Daukoru said during a visit to South Korea. Setting a target price band "is not really applicable to the fluid, free market," he added.

Crude prices fell $1.09 to $58.93/bbl Nov. 7, wiping out gains from the previous market session. Traders said they were unsure whether OPEC would cut production.

Meanwhile, the US Energy Information Administration said Nov. 8 that commercial US crude inventories inched up by 400,000 bbl to 334.7 million bbl during the week ended Nov. 3.

US gasoline stocks declined by 600,000 bbl to 204 million bbl during the same period. Distillate fuel inventories dropped 2.7 million bbl to 138.6 million bbl, with a slight increase in heating oil offset by a slump in conventional diesel fuel.

"US oil inventories have fallen heavily relative to their 5-year average for a fourth straight week, bringing the total fall over that period up to 32.5 million bbl or more than 1.1 million b/d," said Paul Horsnell at Barclays Capital Inc., London.

"Gasoline has tightened the fastest, together with diesel. With both gasoline and diesel demand posting strong numbers for October and starting November well, the worries about falling oil demand from a slowing economy do seem to be very horribly wide of the mark," Horsnell said.

US imports of crude fell by 306,000 b/d to 9.8 million b/d during the week ended Nov. 3.

A Nov. 8 report from the Houston office of Raymond James & Associates Inc. said high seas from several storm systems made conditions unsafe for very large crude carriers and ultralarge crude carriers to moor to the Louisiana Offshore Oil Port (LOOP) buoy.

The carriers were unable to offload crude cargoes 20 miles off the Louisiana during Nov. 4-6, said the analysts.

LOOP began receiving tanker cargoes Nov. 7, and all waiting tankers were expected to have offloaded their cargoes by Nov. 11, the analysts said.

Natural gas storage
Meanwhile, natural gas reached its highest price in more than 3 months on Nov. 9. Analysts attributed the gas price gain to the EIA's reporting storage levels fell more than had been expected.

The EIA reported a 7 bcf withdrawal from gas storage for the week ended Nov. 2 after a 9 bcf injection the previous week. Total underground gas storage was 3.4 tcf vs. 3.3 tcf for the same time last year.

EIA statistics for the same week last year show an injection of 61 bcf. The 5-year average for the week is an injection of 24 bcf.

"The year-over-year storage surplus fell to 216 bcf vs. a 284 bcf surplus in the prior week and a 406 (bcf) surplus as of Oct. 6," said Ronald J. Barone, UBS Securities LLC analyst in New York. "Given overall market dynamics so far this week, we estimate the EIA to report a 5 bcf injection next week."

(Online Nov. 13, 2006; author's e-mail: [email protected])