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Unexpected Crude Inventories Drop Pushes Oil to New Record High
17 Apr 08
Crude oil prices have risen to new highs on news that crude and gasoline (petrol) inventories have unexpectedly plummeted over the last week.
Global Insight Perspective | | Significance | Crude oil and gasoline (petrol) stocks over the last week have fallen by 2.3 million barrels and 5.5 million barrels respectively. | Implications | The weak dollar and poor U.S. economic news, together with the latest crude and gasoline stocks data, have caught the market off guard. The news has prompted a rush of investors to shift further capital into commodities such as oil and gold to hedge against inflation. | Outlook | With oil and gasoline trading at record highs, and crude stocks falling when they should have been increasing, the prospects for cheaper retail gasoline rates for U.S. consumers this summer appear dim, with new record highs anticipated. |
NYMEX front-month crude oil futures yesterday hit another all-time high of US$115.21/b in intraday trading after news emerged that U.S. crude and gasoline (petrol) had fallen yet again. The NYMEX May oil futures contract closed at US$114.93/b—up US$1.14 on the day. In London, ICE Brent June futures closed at US$112.66/b—up US$1.35. This is the third consecutive high for the NYMEX front-month contract, which had previously hit a new record in after-hours trading on Tuesday (15 April) on news of further U.S. dollar depreciation against the euro and other major international currencies, as well as reports of a steep decline in U.S. home construction. The latest record came after the Energy Information Administration (EIA) revealed that crude oil and gasoline stocks had fallen, prompting investors to shift more funds into oil to hedge against both inflation and a weakening U.S. dollar. Over the last week, crude oil stocks in the United States have plummeted by 2.3 million barrels, bring total crude stocks down to 313.7 million barrels. Gasoline stocks meanwhile dropped even more, by 5.5 million barrels, taking aggregate stocks to 215.8 million barrels. The magnitude of this fall was unexpected, though perhaps unsurprising given that gasoline inventories were at a five-year high in March. While inventories of gasoline are some 18.8 million barrels higher than over the same period last year, crude stocks are down 18.7 million barrels year-on-year. Elsewhere, distillates and propane stocks each registered slight gains. Crude oil imports are down again for the second week in a row, currently amounting to 8.879 million b/d, down 33,000 b/d on the week. Refinery utilisation rates meanwhile dropped to 81.4%—the lowest level seen since October 2005. Outlook and Implications The big surprise this week has been that the crude stocks have fallen yet again. The market has been especially vulnerable to bullish news recently, with sentiment exacerbated by a failure to accurately predict the latest inventories movement. Given previous falls, a crude stocks increase had been anticipated, especially given that the U.S. summer driving season is fast approaching. During the period between January and May, demand for gasoline is at its weakest, leaving crude and products stocks to increase as refiners perform seasonal maintenance on their facilities and make the transition to summer-blend fuel. This time, however, the opposite appears to have occurred, suggesting the refiners have been reluctant to hold inventory while crude prices remain so high. With gasoline demand expected to rise again from here on, the most immediate implication for U.S. automobile drivers will be higher retail prices paid at the pump for fuel. The EIA is forecasting the retail gasoline could average around US$3.60/gallon during the U.S. summer, up from US$3.39/g currently: itself a new record. With the economy in the doldrums, and fears of recession widespread, the jump in fuel prices may well lead to erosion of gasoline demand as the summer progresses, though this is unlikely to result in appreciable price falls if crude oil prices remain at current levels, as expected. At the time of writing, the NYMEX front-month oil contract was trading slightly lower at US$114.91/b. Related Articles World - United States: 16 April 2008: U.S. Dollar Woes Prompt New Crude Highs
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