MARKET WATCH: NYMEX crude oil drops pending weekly inventory report

Crude oil prices for May delivery dropped more than $1/bbl on the New York market Apr. 21 upon reports that Saudi Arabia was halting air strikes against rebels in Yemen and also as traders awaited the weekly US government oil and product inventory report.

The US Energy Information Administration estimated commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 5.3 million bbl from the previous week. At 489 million bbl, crude oil inventories remain at the highest level for this time of year in at least the last 80 years.

Analysts surveyed by The Wall Street Journal had expected the report to show a build of 2.8 million bbl. The 5.3 million bbl gain for the week ended Apr. 17 was a marked increase compared with 1.3 million bbl for the week ended Apr. 10 (OGJ Online, Apr. 15, 2015).

In a note issued before the latest inventory report, Barclays Capital Inc. analysts said US oil and product inventories remain high but that recent reports indicated crude inventories are starting to grow at a slower pace than in previous months.

“The market might rebalance sooner now that US [refinery] turnarounds are over,” said an Apr. 19 research note from Barclays analysts who also compared US and Canadian supply-demand for light, sweet crude vs. more heavy crude supplies.

“The decline in oil prices is expected to affect North American light and heavy crude production differently,” Barclays said. “In the US and the light oil plays in Canada, it is already apparent that drilling activity has declined precipitously, and we expect outright production declines in several tight oil basins over the coming months.”

The Barclays analysts noted, “Conversely, in Canada, heavy crude oil production is expected to continue growing in 2015, by up to 200,000 b/d, as new projects, including Kearl, Christina Lake, Nabiye, and Surmont, ramp up. So the supply of Canadian heavy crude relative to US light supply is expected to increase.”

Meanwhile in the Middle East, the government of Saudi Arabia declared an end to its air strikes against Houthi rebels in Yemen, although Saudis noted they could resume military action if diplomatic negotiations fail to make progress.

Saudi officials said their objective was fighting terrorism, adding they would counter any military moves by the Houthis.

“We are not talking about a ceasefire,” Saudi coalition spokesman Brig. Gen. Ahmed Asiri told the Saudi-owned television network Al Arabiya, adding that the next operational phase “has a military component.”

Gasoline inventories drop

Total US motor gasoline inventories decreased by 2.1 million bbl for the week ended Apr. 17, but gasoline inventories remain above the upper limit of the average range, EIA said in its Petroleum Status Report.

Finished gasoline inventories increased while blending components inventories decreased last week.

Distillate fuel inventories increased 400,000 bbl and are in the middle of the average range for this time of year. Propane-propylene inventories rose 2 million bbl, which EIA said was well above the upper limit of the average range.

US refinery inputs averaged 16 million b/d during the week ended Apr. 17, which EIA said was 230,000 b/d less than the previous week’s average. Refineries operated at 91.2% of capacity last week.

Gasoline production increased last week, averaging 9.8 million b/d. Distillate fuel production decreased last week, averaging about 4.8 million b/d.

US crude oil imports averaged 7.8 million b/d for the week ended Apr. 17, up 617,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged over 7.6 million b/d, which was 0.9% above the same 4-week period last year.

Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 737,000 b/d, and distillate fuel imports averaged 255,000 b/d last week, EIA said.

Energy prices

The New York Mercantile Exchange May crude oil contract declined $1.12 on Apr. 21 to $55.26/bbl as that contract expired with the end of the trading session. The June contract closed down $1.27 to $56.61/bbl.

The natural gas contract for May climbed nearly 4¢ to a rounded $2.57/MMbtu. The Henry Hub, La., gas price on Apr. 21 increased 3¢ to $2.57/MMbtu.

Heating oil for May delivery dropped 2.4¢ to a rounded $1.85/gal. The price for reformulated gasoline stock for oxygenates blending for May was down 4.3¢ to a rounded $1.88/gal.

The June ICE contract for Brent crude fell $1.37 to $62.08/bbl, while the July contract was down $1.36 to $62.87/bbl. The ICE gas oil contract for May fell $4.25 to $569.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was $58.84/bbl on Apr. 21, down 66¢.

Contact Paula Dittrick at paulad@ogjonline.com.

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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