Oil prices rise on supply data

Oil prices rose again today after dropping initially on a government report that indicated crude oil and gasoline supplies were better than analysts expected last week.

 

Just before the Energy Information Administration released its weekly report, the light sweet crude contract was up 21 cents at $122.05, then retreated as low as $120.54 before bouncing back to settle at $123.53 a barrel.  It rose as high as $123.80 during trading.

 

Crude prices for the June contract dropped off as investors reacted to the positive supply report.  Once the market realized the numbers are not as bullish as people thought they bought back really quickly.  Normally the market needs at least 20 minutes to digest the information.

 

Crude oil inventories clmbed by 5.7 million barrels for the week ending May 2nd.  Analysts had forecasted a gain of 1.5 million barrels according to a survey from Platts, an energy research firm.

 

At 325.6 million barrels, U.S. crude oil inventories are in the middle of the average range for this time of year.

 

Accoring to AAA's web site Wednesday, gas rose 0.8 cents overnight to $3.618 per gallon, just shy of their all time record of $3.623 set on May 1st.  In the meantime diesel prices slipped back slightly to $4.24 per gallon down from it's record high of $4.25.

 

Gas futures rose 1.27 cents to $3.1182 after the report showed gasoline inventories rose by 800,000 barrels.  This was better than the 500,000 barrels decline that was forecast.  Inventories are in the upper half of the average range for this time of the year.

 

Heating oil futures rose 9.38 cetns to $3.4473 on a surprise drop of 100,000 barrels.  Forecasts were for an increase of 1.3 million barrels.  Distillate fuels are in the lower half of the average range for this time of the year and are nearly 13 percent below a year ago.

 

Tight electricity supplies in China, South Africa, Chile, Argentina and parts of the Middle East have set off a worldwide boom in demand for diesel for use in electric genereators, adding to the robust demand for use in passenger vehicles in Europe.

 

Trader said there was concern an earthquake in Japan would shut nuclear power plants near the tremor and trigger an increase in fuel imports to compensate.  Japanese public broadcaster NHK said the quake had no effect on the facilities.

 

Refineries were running at 85% of capacity last week, a slight decline from the week prior.  Typically they are running at 90% of capacity this time of the year.

 

Natural gas rose 24.4 cents to $11.327

 

Crude oil prices have been rising on supply disruptions in Nigeria and volatile weather in the Gulf of Mexico.  The unusual weather has been the cause of shipping snags that have causes crude oil deliveries from overseas to be held offshore while awaiting safe weather for unloading.

 

Putting pressure on gas prices has been the crack spread.  Wholesale gasoline prices are at about $128 a barrel, an $8 or $9 a barrel premium after paying for crude at recent prices.  Last year crude was roughly $65 a barrel and gas was at $100 a barrel, giving a $35 premium.  This has cut into refiner profits and have caused refiners to hold off on gas production.

 

Gas is not profitable and the equipment that is used to refine crude oil into gasoline are fatiguing.  Even if a refiner had economic incentiv to make gasoline, refineries simply can't maximize output.

 

While oil prices rose today, Singapore Airlines announced that is would be increasing its fuel surcharge to cope with the rapidly rising cost of jet fuel.  It last raised its surcharge in March.

 

On long-haul flights between Asia and North America, the fee will rise to $150 an increase of $20 per flight.  The surcharge will increase $5 to $35 per flight in Southwest Asia, and increase $15 to $95 on other flights.

 

While airlines are feeling the pinch the oil companies are reaping the rewards.  Today Frnace's Total Oil reported a 1Q gain of 18 percent thanks to higher commodity prices.

 

Excluding an after-tax inventory effect, adjusted net income increased 9 percent to 3.25 billion euros($4.87 billion).  The company's exploration and production business accounted for 85 percent of overall operating profit.

 

Due to these outrageous profits members of Congress are talking about halting the buildup of the Strategic Petroleum Reserve, the nations emergency oil stockpile.  It currently sits at a record level of 701.3 million barrels.  The White House want to fill teh reserve to its 727 million barrel capacity this year and to ultimately double the capacity to 1.5 billion barrels to protect against potential supply disruptions.

 

The Bush administration has said additions of 70,000 barrels per day to the reserve hasn't had a "meaningful impact on out nation's supplies of oil."  The U.S. Energy Information Administration estimates the impact on gasoline prices in the U.S. at between four and five cents per galloon.  Some lawmakers think the impact could be as much as 24 cents a gallon.  Lawmakers are considering attaching legislation to halt the buildup to must-pass legislation financing for the war in Iraq.

 

Another proposal is raising the minimum collateral requirements for oil traders.  Currently exchanges set their own margin requirements.  On some exchanges, crude oil contracts can be sought or sold for as little as 5% of their nominal value.  $100,000 worth of oil will cost you $5,000 to $7,000.  Sen. Byron Dorgan(D. North Dakota) says he is drafting legislation that would raise margin requirements to at least 25%.  This is hoped to discourage speculative trading.

 

Governors of Texas and Connecticut and some Republicans are calling for easing the federal mandate that requires blending 15 billion gallons of corn-based biofuels into the nations gasoline supply by 2015.  Biofuel industry officials say loosening the mandate would lead to higher gas prices because of supply disruptions and higer costs of replacement gasoline.

 

The House Judiciary Committee has called on OPEC's secretary general, Abdalla Salem El-Badri, to make himself available to testify at a hearing on high gasoline prices later this month.  Lawmakers are pushing legislation to allow members of OPEC to be sued under U.S. antitrust laws.

 

President Bush and Republican senators are jumping on high oil prices to renew their drive to allow drilling in parts of the Arctic National Wildlife Refuge, including parts that are currently off-limits.

 

President Bush is planning to ask OPEC to increase oil production once again when he visits Saudia Arabia on May 16th.

 

Exxon Mobil has lifted a force majeure on its crude oil exports from Nigeria.  A union workers strike late in April disrupted Exxon's 800,000 barrels per day production.  The output has since resumed.  The company said it was looking to minimize the impact of the supply disruption.

 

Both parties say negotiations continue over workers' pay.  The talks being held in Lagos are to resume on Thursday.

 

In the futures market their was 344,379 contracts traded today up from 294,780 yesterday.  Currently their are 327,550 open contracts down from yesterday's 347,081.

 

The 20 day moving average is at $115.91 and the 50 day moving average is at $108.73.  The relative strength is setting quite high right now at 73%.  At the present time a pullback or a drift sideways in oil prices could come at any time.

 

(See current chart of oil prices at the bottom of the page)