MARKET WATCH: Inventory increases pull down oil prices

Oil prices fell for the third straight day Jan. 13 in the New York market following reports of unexpected increases in US inventories of crude, gasoline, and distillates.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 14 -- Oil prices fell for the third straight day Jan. 13 in the New York market following reports of unexpected increases in US inventories of crude, gasoline, and distillates.

The Energy Information Administration reported commercial US crude inventories jumped 3.7 million bbl to 331 million bbl in the week ended Jan. 8, more than double the Wall Street consensus for a 1.5 million bbl build. Gasoline stocks shot up 3.8 million bbl to 223.5 million bbl, compared with expectations of a 1.7 million bbl increase. Distillate fuel inventories increased 1.4 million bbl to 160.4 million bbl, surprising analysts who anticipated a 1.3 million bbl decline. Crude, gasoline, and distillate stocks are all above average for this time of year, EIA said (OGJ Online, Jan. 13, 2010).

The American Petroleum Institute earlier reported US crude stocks up 1.2 million bbl to 330.1 million bbl for the week. Gasoline inventories jumped by 6.8 million bbl to 226.9 million bbl, API said, while distillates gained 3.6 million bbl to 166.2 million bbl despite cold weather, which analysts had expected to reduce inventories.

The EIA report “showed an overall stock build of 3.5 million bbl, which was the first overall build in 6 weeks, while the combined stocks of crude and the main visible products (gasoline, distillates, kerosine) built by 9.6 million bbl and are at the highest starting levels for a start of a year since many, many years (1999),” said Olivier Jakob at Petromatrix, Zug, Switzerland.

“The weather might have been cold and winter is not yet over, but with these high starting stocks there will not be much tank capacity for stock builds, while the US would need to draw 60-80 million bbl to reach what have been spring stock levels in recent ‘normal’ years,” Jakob said. “One thing for sure,” he noted, “it will be materially impossible to show in 2010 the same year-on-year surplus as in 2009 because of the higher starting base . . . We also need to keep in mind that West Texas Intermediate is currently at $80/bbl compared [with] $35/bbl in the first quarter of 2009; hence a lot of improvement on the fundamental side is already priced in.”

Jakob said, “The balancing equation is relatively simple: For a real tightening of the balances, demand needs to be sustained at a level high enough that it increases refinery runs to capacity and at the same time draws the floating stocks [of oil and distillates stored in tankers] down to zero. For now, demand is not yet high enough. The other alternative is that oil prices move down to such low levels that it significantly reduces the oil supply available. For now, oil prices are not low enough.”

He reported, “The dollar index has been under pressure this week, and with crude oil correcting lower, this is starting to narrow the gap between the nominal price of crude oil and its implied value on the euro correlation model. WTI is still overbought on the euro correlation model but by $7/bbl rather than $10/bbl.”

Energy prices
The February contract for benchmark US sweet, light crudes hit an intraday low of $78.37/bbl in the regular trading session Jan. 13 on the New York Mercantile Exchange before closing at $79.65/bbl, down $1.14 for the day. The March contract dropped $1.13 to $80.04/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.14 to $79.65/bbl. Heating oil for February delivery declined 3.72¢ to $2.09/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 3.76¢ to $2.06/gal.

The February natural gas contract gained 14.2¢ to $5.73/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $5.61/MMbtu.

EIA reported the withdrawal of 266 bcf of natural gas from US underground storage in the week ended Jan. 8. That left 2.85 tcf of working gas in storage, 103 bcf higher than in the same period last year and 121 bcf above the 5-year average.

In London, the February IPE contract for North Sea Brent crude dropped 99¢ to $78.31/bbl. The new front-month February contract for gas oil fell $22.25 to $636/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was down $1.93 to $77.15/bbl on Jan. 13.

Contact Sam Fletcher at samf@ogjonline.com.

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