AP News, June 6th, 2007
Gasoline futures fell Wednesday after the government reported an unexpectedly large increase in gas inventories and a surprising decline in refinery utilization.
Oil futures jumped when news broke that several thousand Turkish troops had crossed into northern Iraq to chase Kurdish guerrillas. Light, sweet crude for July delivery recovered from early losses and rose 35 cents to settle at $65.96 a barrel on the New York Mercantile Exchange. Gasoline futures for July dropped 1.69 cents to settle at $2.1904 a gallon on the Nymex.
Retail gas prices also continued their downward track. The average national price of a gallon of gas slipped 0.8 cent overnight to $3.14, according to AAA and the Oil Price Information Service. Prices at the pump peaked at $3.227 a gallon last month.
Also on the Nymex, heating oil futures rose 0.93 cent to settle at $1.9737 a gallon while natural gas futures rose 1.6 cents to $8.08 per 1,000 cubic feet.
Brent crude for July jumped 57 cents to $71.02 a barrel on the ICE Futures exchange in London.
Gasoline inventories jumped by 3.5 million barrels in the week ended June 1, according to the Energy Information Administration's weekly inventory report, handily beating estimates. Analysts polled by Dow Jones Newswires had expected a 1.5 million barrel increase.
Crude inventories rose by 100,000 barrels, in line with expectations. But refinery utilization fell by 1.5 percent to 89.6 percent. Analysts had expected a 0.6 percent increase.
Inventories of distillate fuels, which include heating oil and diesel, rose by 1.9 million barrels per day. Analysts forecast distillate stocks to grow by 800,000 barrels.
Imports of crude oil grew last week by 222,000 barrels per day to 10.2 million barrels a day, while gasoline imports averaged 1.5 million barrels a day, down about 100,000 barrels a day from the week before.
Traders' initial focus was on the big increase in gasoline inventories, said Tim Evans, an analyst at Citigroup Global Markets.
"This market's not getting tighter, it's building inventories," Evans said.
Traders and analysts have been concerned about gasoline supplies throughout the spring. An unusually high number of refinery outages has kept gas supplies far below their normal levels, part of the reason retail prices shot up to record levels.
Though another round of refiners reported outages Tuesday, those reports do not carry the impact they once did, analysts say.
"Rising inventories do indicate a surplus," Evans said.
However, Evans said there were a number of inconsistencies in the inventory report's numbers. It would not be surprising to see prices fluctuate later in the week as traders assess different parts of the report, he said.
"I've got a lot of questions, and I don't have full answers," Evans said.
Shortly after the inventory report sent markets lower, Turkish troops moved into Iraq.
"That's something brand new to the mix," said James Cordier, president of Liberty Trading Group in Tampa. "That's what caused the turnaround this morning."
"Whenever there's a risk of military action near an oil field, people get nervous," said Michael Lynch, president of Strategic Energy & Economic Research Inc., in Winchester, Mass.
Other than gasoline, the entire energy complex followed oil futures higher on the Iraq news.
"What happens in the Middle East is not going to have any impact on U.S. gasoline prices," Lynch said.
Cordier said gas will have a tough time rallying over the next couple of days in light of the inventory report.
Cyclone Gonu, which forced evacuations in Oman and a partial shutdown of the country's oil facilities, has already been built into oil prices, analysts said. While Gonu headed toward the Strait of Hormuz _ a major transport artery for Persian Gulf oil _ and Iran, traders see its impact as logistical, Evans said. In other words, it might delay oil shipments, but that oil will eventually get to its destination.
"All it does is delay some ships, and only briefly," Lynch said.
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Associated Press writers George Jahn, in Vienna, and Gillian Wong, in Singapore, contributed to this report.
