Crude futures fall, remain below $110 on weak petroleum demand
11:48 AM ET 9/4/08 | Marketwatch
SAN FRANCISCO (MarketWatch) -- Crude-oil futures fell Thursday 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 $2.41, or 2.3%, to $106.94 a barrel in electronic trading on Globex. It traded as high as $110.60 and as low as $106.52.
The contract was down $2.15 at $107.20 on the New York Mercantile Exchange.
Prices for natural gas declined as much as 3% after U.S. data showed that supplies in storage rose generally as expected last week.
Crude supplies fell by 1.9 million barrels to 303.9 million for the week ended Aug. 29, the U.S. Energy Department's Energy Information Administration reported Thursday. The data was released a day late -- and after the natural-gas supply data -- because of the Labor Day holiday.
But separately, the American Petroleum Institute 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 Kevin Kerr, editor of Global Commodities Alert at KerrAlert.com. "The discrepancy in data is troubling but nothing new really."
Motor gasoline supplies fell by 1 million barrels to 194.4 million barrels last week, according to the EIA. They've dropped a total of 22.7 million barrels in six weeks.
Analysts at MF Global expected a decline of 3.2 million barrels in the latest week.
The API reported that gasoline supplies were up 935,000 barrels at 199.1 million barrels.
The inventory data from the EIA "was about as expected, but the gasoline number was a bit concerning," said Kerr.
"We may see more evidence of the impact of 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.
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 7.7 cents to $2.69 a gallon and October heating oil fell 5.6 cents to $3.0228 a gallon.
Natural-gas supply up
Prices for natural-gas futures edged lower 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 dropped 11 cents to $7.154 per million British thermal units. It was trading more than 9% 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 its latest advisory Thursday morning.
"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 550 miles northeast of the Leeward Islands in the Atlantic.
Separately, Tropical Storm Hanna was passing near the Bahamas early 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 465 miles west of the southernmost Cape Verde Islands, the NHC said.
As of Wednesday, about 95.8% of oil production in the Gulf remained shut-in due to Gustav and about 91.6% of natural-gas production in the Gulf was down, according to the U.S. Minerals Management Service. The MMS will provide an update later Thursday.
"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.
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."
On the currency markets, the dollar traded mixed against its rivals. The dollar index (DXY), a measure of the greenback against a trade-weighted basket of six major currencies, edged up 0.7% to 78.65. See Currencies.
Taking a look at the commodities sector as a whole, the Reuters/Jefferies CRB Index (CRB), a benchmark gauging the prices of major commodities, fell by 0.6%.
Gold futures moved lower, but continued to trade above $800 an ounce. See Metals Stocks. |
