MARKET WATCH: Conflicting inventory reports produce futures prices mix

<a href=ogj.pennnet.com>Oil &Gas Journal Sam Fletcher Senior Writer

HOUSTON, Apr. 17 -- Energy futures prices were mixed Wednesday as traders contemplated conflicting signals from weekly reports of US inventories of crude and petroleum products.

The US Department of Energy estimated commercial US crude inventories increased by 100,000 bbl to 277.2 million bbl during the week ended Apr. 11. However, the American Petroleum Institute estimated a drop of 4.5 million bbl to 273.8 million bbl of crude during the same period. Although the two organizations use different methodologies to compute their estimates, such a large discrepancy in stock estimates is relatively rare, analysts said.

DOE reported US gasoline stocks fell by 300,000 bbl to 201.9 million bbl during the same period, while API registered an increase of 1.1 million bbl to 203.4 million bbl of gasoline. DOE said US distillate inventories dropped 400,000 bbl to 95.7 million bbl; API reported a larger loss of 1.6 million bbl to 97.1 million bbl of distillate.

Focused on OPEC Meanwhile, market attention is focusing on the upcoming Apr. 24 meeting in Vienna of oil ministers from the Organization of Petroleum Exporting Countries. Many traders, analysts, and "some OPEC ministers" are "clamoring for significant production cuts to prevent a major slide in prices," noted Paul Horsnell, head of energy research for JP Morgan Chase & Co., London.

However, Horsnell said Tuesday in a weekly report, "We do not think that OPEC should be in any rush to cut production at this point. We see no pending oil glut." Instead, he said, "There is a risk that, in responding to overly bearish sentiment, OPEC will simply repeat the mistake of last year and over-tighten the market through (the second and third quarters)."

Officials of the Paris-based International Energy Agency also cautioned OPEC ministers against cutting crude production next week when oil prices are still relatively high. Some OPEC ministers have indicated that they may need only to trim back their collective overproduction. OPEC's 10 active members, excluding Iraq, are estimated by some to have produced in March 1.4 million b/d above their official quota of 24.5 million b/d.

"With the falling off in Iraqi and Nigerian output, total OPEC production seems to have entered April at no more than 26.2 million b/d. There is also a question raised by tanker trackers as to whether Saudi Arabia is actually supplying as much as it is producing, suggesting that actual supplies may have fallen below 26 million b/d," Horsnell said. "Any increased supplies from Venezuela, Nigeria, or, less plausibly in the short run, Iraq, would need to be offset if and when they arrived, but we would view any reduction in the total (quota) as skewing price risks to the upside."

However, the situation may look different to OPEC ministers who, said Horsnell, "are naturally risk adverse and are faced with contradictory balances, with bearish (market) sentiment, and with estimates of production from the Venezuelan government that they must accept but that look to be overstating the reality." Under those conditions, he said, "The odds seem slightly to favor some sort of bias toward production decreasing as from June. In all, the more talk there is of price crashes, the greater the chance of prices overheating (from resulting production cuts)."

Market prices The May contract for benchmark US light, sweet crudes dipped by 11¢ to $29.18/bbl Wednesday on the New York Mercantile Exchange, while the June position was unchanged at $27.53/bbl. Unleaded gasoline for May delivery jumped by 1.39¢ to 87.27¢/gal. Heating oil for the same month was down 0.77¢ to 76.49¢/gal.

The May contract for natural gas gained 2.4¢ to $5.68/Mcf Wednesday on NYMEX "after being hammered early by fund and trade selling on technical factors, then lifted by locals short-covering (buying commodities to close out a short sale) late," analysts said Thursday at Enerfax Daily.

Anticipation among traders that the US Energy Information Administration would report Thursday another draw down of natural gas from underground storage "helped turn the market around with buying from locals. A technical shift from down to up shows the illiquidity of the market. With thin volume, the market is easier yanked around. The trend-day down became a trend-day up, an unusual occurrence that can signal a market to reversal, or a market turning downward."

EIA said Thursday that 48 bcf of gas was withdrawn from US underground storage during the week ended Apr. 11. That compares with a withdrawal of 9 bcf the previous week and an injection of 15 bcf during the same period last year. That leaves 623 bcf of gas in US underground storage, down 883 bcf from a year ago and 598 bcf below the 5-year average.

In London, futures prices for North Sea Brent crude settled slightly lower Wednesday, following expiration of the May contract on the International Petroleum Exchange. Brokers said the market ignored conflicting reports on US crude inventories to focus on the recovery of Nigerian production and the apparent end to major military conflict in Iraq.

The June Brent contract lost 14¢ to $25.02/bbl. The May natural gas contract gained 4¢ to the equivalent of $2.62/Mcf on IPE

The average price for OPEC's basket of seven benchmark crudes increased by 15¢ to $25.71/bbl Wednesday.

Contact Sam Fletcher at samf@ogjonline.com