MARKET WATCH: Low inventory escalates energy prices
Sam Fletcher
Senior Writer
HOUSTON, May 22 -- The price of oil shot past $134/bbl May 21 after the Department of Energy reported a surprise drop in US crude inventories, the first decline in 5 weeks.
The new front-month July contract continued climbing overnight via electronic trading and topped $135/bbl in early trading May 22 on the New York market.
DOE's Energy Information Administration reported that commercial inventories of benchmark US light, sweet crudes fell 5.4 million bbl to 320.4 million bbl in the week ended May 16. The consensus among Wall Street analysts was for a 500,000 bbl increase. Crude supplies had climbed more than 12 million bbl in the prior 4 weeks.
Gasoline stocks declined 800,000 bbl to 209.4 million bbl last week, vs. expectations of a 300,000 bbl build. Distillate fuel inventories gained 700,000 bbl to 107.8 million bbl, just half the increase anticipated by analysts. Imports of crude into the US dropped 696,000 b/d to 9.2 million b/d in that same period. Input of crude into the US refining system inched up by 29,000 b/d to 15.1 million b/d, with refineries operating at 87.9% of capacity (OGJ Online, May 21, 2008).
"With the oil bear going the way of the [extinct] Dodo bird, bulls continue to dominate the show," said analysts in the Houston office of Raymond James & Associates Inc.
"The [EIA] inventory report sparked a strong run in crude prices, breaking through the $134/bbl level for first time and closing up 3.3% on the trading session." Meanwhile, they said, "The International Energy Agency is helping to keep the party going by announcing renewed skepticism about long-term oil supply."
The IEA is attempting an independent assessment of the world's 400 largest oil fields by November, although some of the major players such as Saudi Arabia, Iran, and Russia are reluctant to divulge information. But already IEA is indicating that crude supplies may be tighter than currently projected, especially in coming years. The Paris-based agency indicated a likely shortfall of 12.5 million b/d between capacity additions and incremental demand by 2015. "All in all, the focus on a lack of supply 3-4 years down the road may have spurred the futures markets, as oil recently fell back into contango for the first time since mid-2007," said Raymond James analysts.
Meanwhile, there already is a global shortage of diesel fuel, analysts say. In the wake of the severe earthquake in China, that country's demand for diesel for electricity generation has escalated sharply, boosting energy prices.
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