HOUSTON, Apr. 13 -- Crude futures prices dipped Apr. 12 with a jump in US crude inventories, but petroleum products prices continued to climb in the New York market.

Geopolitical problems linger, however. "With Nigeria, Iraq, and Iran continuing to provide a very raw edge of actual and potential supply-side interruptions, the chances of that significant and sustained push above $70 seem all the more higher," said Paul Horsnell of Barclays Capital Inc., London

"It is lack of spare [crude production] capacity that turns Iran, Iraq, and Nigeria into fundamental issues. Had there not been a long period in which demand has run ahead of supply capacity increases, then cover would be greater and the importance of geopolitical risk would have been reduced," Horsnell said.

The Energy Information Administration said commercial US crude inventories gained 3.2 million bbl to 346 million bbl during the week ended Apr. 7. However, gasoline stocks dropped by 3.9 million bbl to 207.9 million bbl in the same period while distillate fuel inventories fell by 4.2 million bbl to 117.4 million bbl, with declines in both heating oil and diesel (OGJ Online, Apr. 12, 2006).

'Bullish' for refiners
That's "another bullish indicator for refiner fundamentals, with lower production and moderating import levels resulting in a much larger than expected drawdown on inventories," said Jacques Rousseau, an analyst with Friedman Billings Ramsey Group Inc. of Arlington, Va. "We expect these supply constraints to continue through April as refiners complete maintenance operations and work through the methyl tertiary butyl ether phaseout," he said.

Horsnell said, "The 4-week average of US gasoline output is now down to even lower levels than it reached in the wake of the hurricanes [Katrina and Rita], and the year-to-year rise in gasoline imports has contracted further as a factor."

He noted that US gasoline inventories have fallen sharply in the key regions on strong demand, low output, and weakening imports. Gasoline stocks fell "by no less than 5.2 million bbl" in the key East Coast, Midwest, and Gulf Coast areas, while a decline of 3.9 million bbl on the East Coast took gasoline inventories "well below the 5-year average in that region," he said. "On the demand side, the first implied gasoline demand reading for April came in at 9.297 million b/d, the highest weekly reading of the year so far."

Horsnell said, "Total inventories have fallen counterseasonally for a fifth week, and the overall increase above the 5-year average has continued to fall, most markedly in the fairly rapid erosion of the oil product overhang. Even the rise in crude oil inventories is relatively muted given how low refinery runs are."

EIA earlier predicted summer retail gasoline prices will average $2.62/gal, up 25¢ from last summer's average and well above historical levels. But that assumes no significant disruptions of refinery operations by hurricanes. "A heavy hurricane season could result in materially higher gasoline prices," Rousseau warned. On the other hand, he said, higher prices could reduce EIA's predicted 1.5% growth in gasoline demand growth this summer.

Energy prices
The May contract for US light, sweet crudes dropped 36¢ to $68.62/bbl Apr. 12 on the New York Mercantile Exchange. The June contract declined by 29¢ to $70.09/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 36¢ to $68.63/bbl. However, gasoline for May delivery jumped by 3.67¢ to $2.09/gal on NYMEX. Heating oil for the same month gained 1.91¢ to $1.97/gal.

The May natural gas contract fell 10¢ to $6.81/MMbtu. On Apr. 13, EIA reported the injection of 19 bcf of natural gas into US underground storage during the week ended Apr. 7. That was below the expectations of Wall Street analysts and compares with the withdrawal of 10 bcf the previous week and the injection of 44 bcf during the same period a year ago. US gas storage now stands at 1.7 tcf, up 427 bcf from a year ago and 665 bcf above the 5-year average.

In London, the May IPE contract for North Sea Brent crude gained 5¢ to $69.42/bbl. Gas oil for April delivery was unchanged at $592.50/tonne.

The average price of the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by 23¢ to $63.84/bbl on Apr. 12.

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