MARKET WATCH: Crude oil, natural gas prices fall

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 28 -- The front-month crude contract price dropped 0.7% Oct. 27 in the New York market as the US dollar strengthened and a larger-than-expected build in crude inventories offset an unexpectedly large decline in gasoline stocks.

“Natural gas prices slid once again as the November contract rolled off the board…a full $1 lower than last year and the second lowest expiration in well over 5 years,” said analysts in the Houston office of Raymond James & Associates Inc.

The Energy Information Administration reported Oct. 28 the injection of 71 bcf of natural gas into US underground storage in the week ended Oct. 22. That brought working gas in storage to more than 3.75 tcf, down 1 bcf from the comparable week last year but 312 bcf above the 5-year average. The Wall Street consensus was for an injection of 73 bcf.

EIA earlier said commercial US crude inventories jumped by 5 million bbl to 366.2 million bbl in the same week, far exceeding the Wall Street consensus for a 1 million bbl increase. Gasoline stocks fell 4.4 million bbl to 214.9 million bbl in the same period, counter to analysts’ expectations of a 600,000 bbl gain. Both finished gasoline inventories and blending components inventories decreased. Distillate fuel inventories dropped 1.6 million bbl to 168.4 million bbl, slightly exceeding Wall Street’s prediction of a 1.5 million bbl decline (OGJ Online, Oct. 27, 2010).

EIA data show US stocks “marginally (600,000 bbl) higher during the week but with a stock draw of 1.4 million bbl in the visible stocks (crude plus clean petroleum products),” said Olivier Jakob at Petromatrix, Zug, Switzerland. “The overall stock levels remain at historical high levels for the season, and it would take a weekly stock draw of 10-12 million bbl each single week until the end of the year before stocks could be characterized as relatively tight. However, achieving a 10 million bbl stock draw week after week until the end of the year when there is still contango is something hard to achieve.”

Jakob said, “US stocks are not being reduced hard enough, and this will be an increasing problem for 2011.” He also charged US gasoline demand implied by EIA “is in total contradiction” with the latest MasterCard Spending Pulse report showing a 1.7% drop in the week for retail gasoline sales, “down 2.7% from the same week in 2009 and down 1.3% on the 4-week average.”

The drop in gasoline stocks can not be attributed to lower imports due to the French strike as gasoline imports were at the highest level of the last 7 weeks and especially high in Petroleum Administration for Defense District 1 (PADD 1) on the East Coast. “The stock draws were spread out across all [five] PADDs,” said Jakob. “The higher Canadian crude oil imports, together with higher discharges from Saudi Arabia and Mexico made for the highest imports in 9 weeks, but some of that [increase] could be linked to previous delays on the Houston Shipping Channel.”

Jakob said, “Given that we can not find a justification for the stock draw in the end consumer demand or in the imports or in production (highest level since early September), we will rather have the view that the gasoline stock draws were due either to a push of stocks from rack to retail or a statistical correction.”

Meanwhile, the US Department of Labor said Oct. 28 initial applications for unemployment benefits were down by 21,000 last week to 434,000, seasonally adjusted. It was the second consecutive drop in 2 weeks and the second-lowest number of first-time claims this year, exceeded only in the week ended July 10 when state unemployment offices were closed for the Independence Day holiday.

That prompted a “half-full” view among some that the job market may be improving. However, previous declines in initial benefits claims below 450,000 didn’t last more than 2 weeks before rebounding. Also, 4.36 million people continued receiving jobless benefits under the conventional system last week, not counting an additional group receiving extended benefits under an emergency program approved by Congress during the recession. Many still-unemployed workers have fallen off the jobless rolls after exhausting their benefit entitlements. The US unemployment rate increased to 9.7% in September, up from 9.6% in August, tempting some to see the troubled economy as “half empty.”

Energy prices
The December contract for benchmark US light, sweet crudes dropped 61¢ to $81.94/bbl Oct. 27 on the New York Mercantile Exchange. The January contract lost 53¢ to $82.67/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 61¢ to $81.94/bbl. Heating oil for November delivery declined 1.17¢ to $2.24/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.8¢ to $2.10/gal, however.

The expiring November natural gas contract fell 6.2¢ to $3.29/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 4.9¢ to $3.36/MMbtu.

In London, the December IPE contract for North Sea Brent crude was down 43¢ to $83.23/bbl. Gas oil for November lost $14.25 to $696/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped 56¢ to $79.19/bbl.

Contact Sam Fletcher at [email protected].