Crude futures close at five-month low on weak petroleum demand
Sep 4, 2008 Market Outlook
Crude futures at five-month low on weak demand
Natural-gas prices edge up after a 90 billion cubic-foot rise in U.S. inventories
By Myra P. Saefong & Polya Lesova, MarketWatch
Last Update: 9/4/2008 3:27:00 PM
SAN FRANCISCO (MarketWatch) — Crude-oil futures fell Thursday to close at a
five-month low after a U.S. government report showed that supplies of gasoline
fell for a sixth week in a row, but less than expected as demand for petroleum
remained weak and storms in the Atlantic posed no immediate threat to energy
production in the Gulf of Mexico.
Crude for October delivery fell by $1.46, or 1.3%, to close at $107.89 a barrel
on the New York Mercantile Exchange. It hasn’t closed at a level this low since
April, and the contract has fallen each trading session since Aug. 27, losing
8.7% since that day’s close of $118.15.
The contract was at $107.87 in electronic trading on Globex as of 3 p.m. EDT. It
traded as high as $110.60 earlier Thursday.
And after data showed that natural-gas supplies in storage rose generally as
expected last week, prices for natural gas dropped as much as 3%, but they
recovered by the close.
Motor gasoline supplies fell by 1 million barrels to 194.4 million barrels for
the week ended Aug. 29, the U.S. Energy Department’s Energy Information
Administration reported Thursday. The weekly report was released a day later than
usual — and after the natural-gas supply data — because of the Labor Day
holiday.
Gasoline supplies have dropped a total of 22.7 million barrels in six weeks, EIA
data show.
But analysts at MF Global expected a bigger decline of 3.2 million barrels in the
latest week.
The inventory data from the EIA “was about as expected, but the gasoline number
was a bit concerning,” said Kevin Kerr, editor of Global Commodities Alert at
KerrAlert.com.
“We may see more evidence of the impact of [Hurricane] Gustav in next week’s
data, but overall we see strong support at $106 in the oil and it’s likely we
will see prices rally once we get to that level,” he said in emailed comments.
Separately Thursday, the American Petroleum Institute reported that gasoline
supplies were up 935,000 barrels at 199.1 million barrels in the latest week.
Crude supplies fell by 1.9 million barrels to 303.9 million, the EIA said. But
the API reported a 4.2 million barrel rise in crude supplies to 310.3 million
barrels.
“Traders seem to be paying less and less attention to the API data,” said Kerr.
“The discrepancy in data is troubling but nothing new really.”
Rounding out the supply data, distillate stocks were down 400,000 barrels at
131.7 million barrels, the EIA said. The API said they lost 157,000 barrels to
129.4 million barrels.
Refiners ramp up
Meanwhile, refinery utilization climbed to 88.7%, compared with 87.3% of capacity
a week earlier, the EIA data showed.
“Refineries were likely boosting production in anticipation of Hurricane Gustav,”
said Chris Lafakis, an associate economist at Moody’s Economy.com. “Refiner
capacity utilization will sharply retrench in next week’s report, as more than
11% of total U.S. refinery capacity is still shut following the hurricane.”
“Despite the increase in production, refiners are not producing enough gasoline
to keep inventories constant given the current level of gasoline demand,” he said
in a weekly report issued after the supply data.
Over the past four weeks, total products supplied, which is a good indication of
demand, averaged almost 20.3 million barrels per day, down 3.5% from the same
time a year ago, the EIA reported.
Of that, motor gasoline demand averaged 9.4 million barrels, down 1.6% from the
same time a year ago.
On Nymex, October reformulated gasoline shed 2.6 cents to close at $2.7404 a
gallon and October heating oil fell 5.5 cents to end at $3.0237 a gallon.
Natural-gas prices recover
Prices for natural-gas futures finished higher Thursday after a U.S. government
agency reported a 90 billion cubic-foot increase in natural-gas supplies in
storage for the week ended Aug. 29.
That matched an estimate from analysts at Global Insight.
“The natural gas number was decidedly bearish, but at this level natural gas may
not have much further to go to the downside,” said Kerr.
October natural-gas futures added 5.8 cents to close at $7.322 per million
British thermal units on Nymex. It fell to a low of $7.04 earlier Thursday and
was trading almost 8% lower for the week so far.
“There’s nothing to prop natural gas up — no storms, falling demand and rising
production,” said Beth Sewell, a managing partner at Quantum Gas & Power
Services.
“We should see some significant storage injection reports over the next few weeks
– perhaps not much this Thursday due to Gustav, but if any of the named storms
draw a bead on the Gulf, it’s game on,” she said.
Total natural-gas stocks now stand at 2.847 trillion cubic feet, down 148 billion
cubic feet from the year-ago level but 102 billion cubic feet above the five-year
average, the government data said.
If natural-gas prices drop too far that “may encourage some producers to shut in
[production] for awhile,” said Sewell.
Storm watch
Energy traders continued to watch Hurricane Ike, which the National Hurricane
Center described as “an extremely dangerous Category 4 hurricane” in an 11 a.m.
EDT advisory Thursday.
“With more storms coming in, volatility will be high” for oil, said Phil Flynn, a
vice president at Alaron Trading. “The bottom line is that if these storms pass
without major damage or disruptions, oil is headed back below $100 and probably
to $85.”
So for now, “the plan of course would be to sell rallies obviously — yet it is
dangerous selling into the storms,” he said in a note to clients.
The NHC said it was too early to tell what land areas may be affected by Ike. The
hurricane’s center was located about 525 miles northeast of the Leeward Islands
in the Atlantic.
Separately, Tropical Storm Hanna was passing near the Bahamas Thursday. It was
not likely to be a threat to Gulf of Mexico energy production, with the NHC
expecting it to eventually make its way to the Eastern Seaboard. Hanna could
become a hurricane before it reaches the southeastern U.S. coast.
And another tropical storm, Josephine, was located about 520 miles west of the
southernmost Cape Verde Islands, the NHC said late Thursday morning.
As of Thursday, about 95.2% of oil production in the Gulf remained shut-in due to
Gustav and about 87.5% of natural-gas production in the Gulf was down, according
to the U.S. Minerals Management Service.
“We suspect that once the hurricanes are behind us, [oil] prices could start
another leg lower, as participants will focus on the fact that OPEC will most
likely stick to an unchanged quota position in the face of weakening demand,”
said Edward Meir, an analyst at MF Global, in a research note.
Members of the Organization of the Petroleum Exporting Countries cartel are
meeting on Sept. 9 in Vienna. Member Venezuela has been pushing for an output
cut, but Ecuador has said it wants to keep production levels unchanged, according
to news reports.
On Wednesday, crude fell 36 cents to close at $109.35 a barrel on Nymex.
“Disappointing global growth data, shrinking consumer sentiment and risk aversion
triggered a heavy sell-off in raw materials and energy products this summer,”
said Andrey Kryuchenkov, an analyst at Sucden Research, in a note.
“As a result, investors are revaluing their portfolios and buying the dollar
back, while liquidating the euro and sterling,” he said. “Further appreciation in
the greenback could add more pressure to dollar-denominated commodities.”
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Tags: Crude Futures, Crude Oil Futures, Energy Department, Energy Information Administration, Foot Rise, Global Commodities, Globex, Government Report, Hurricane Gustav, Inventory Data, Kevin Kerr, Mf Global, Motor Gasoline, Natural Gas Prices, New York Mercantile, New York Mercantile Exchange, Polya, Trading Session, U S Energy, York Mercantile Exchange
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