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Oil & Gas Journal

Sam Fletcher
Senior Writer

HOUSTON, May 15 -- Prices for crude and products fell May 14 following a government report of a larger-than-expected build in US distillate fuel inventories and a larger-than-expected fall in gasoline stocks.

"On a day when polar bears became a protected species, the very rare and elusive oil bear came out of hiding, driving crude prices down on the trading session," said analysts in the Houston office of Raymond James & Associates Inc. "However, with worldwide economic growth continuing to surprise on the upside, most recently with Germany announcing that it had first quarter economic growth of 1.8%—double what economists were expecting—look for the oil bears' population to remain threatened and endangered."

Natural gas prices climbed, hitting an intraday record of $11.794/MMbtu on the New York market, after Enterprise Products Partners LP said repair of its Independence Trail pipeline will not be completed before mid-June. Analysts at Pritchard Capital Partners LLC, New Orleans, said, "Traders had been anticipating a mid-May restart to as much as 900 MMcfd. When the hub went off-line on Apr. 8 due to a leak on the associated Independence Trail pipeline, the original repair estimate was 1-4 weeks. While the hub's extended outage adds to the concern of some that natural gas storage will have a hard time refilling in time for the winter heating season, other market experts are not too concerned."

The Energy Information Administration reported US gasoline inventories fell 1.7 million bbl to 210.2 million bbl in the week ended May 9, surpassing the 100,000 bbl decrease expected by Wall Street analysts. Distillate fuel increased 1.4 million bbl to 107.1 million bbl vs. a consensus of an 800,000 bbl build. US crude inventories inched up only 200,000 bbl to 325.8 million bbl, well below Wall Street's projections of a 1.9 million bbl increase (OGJ Online, May 14, 2008). Crude inventories have increased a total of 12.1 million bbl over the past 4 weeks.

The increase in distillate stocks "put a halt to the impressive rise in distillate prices that have occurred over the past 2 weeks," Pritchard Capital Partners analysts said. But distillate prices were up in overnight electronic trading, "so it looks as though the rally may be back in style," they said May 15.

The American Automobile Association reported the average US retail price for regular unleaded gasoline climbed to a record of $3.758/gal May 14, up more than 11% from a month ago. In Alaska, the average retail gasoline price statewide was $4/gal. US retail diesel prices peaked at a record average of $4.419/gal. On the West Coast, spot jet fuel lost 7¢ to $3.86/gal May 14. "Some think this product could hit $4/gal, given the strong demand for jet fuel in Asian markets. On the East Coast, New York Harbor ultralow-sulfur diesel is expected to push back into the $3.90s given the strength in overnight prices," said Pritchard Capital Partners.