Commodities: US sees largest drop in gasoline inventories in 12 years

Prices unless otherwise stated are for the close of April 13.
2012 baseload German power: €58.06/MWh, down 0.94%
2012 CIF ARA Coal: €129.30/t, down 1.16%
Front-month UK natural gas: GBp60.33/therm, down 0.75%
EU emission allowances (EUAs) for December 2011 delivery: €16.64/t, up 0.30%
Certified Emission Reduction(s) (CERs) for December 2011 delivery: €12.78/t, up 0.24%
Brent crude oil futures for front-month 2010 delivery: US$122.92/bbl, up 0.0%, as of 08:45 GMT, April 14
WTI crude oil futures for front-month 2010 delivery: US$107.07/bbl, up 0.1%, as of 08:45 GMT, April 14

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According to the EIA’s “This Week in Petroleum” report, US crude inventories rose by 1.6mbbl to 359.3mbbl in the week ended April 8, while those at Cushing, Oklahoma, remained rose by 26,000bbl to 41.9mbbl. More significantly, total gasoline stocks fell by an impressive 7mbbl to 209.7mbbl, compared to the year-ago figure of 221.3mbbl. The decline was the largest weekly fall in 12 years and was seven times larger than the draw-down predicted in a Bloomberg survey. The main factors responsible were a 3.7% increase in gasoline demand and a 3% drop in refinery capacity utilisation. Distillate inventories also declined, falling by 2.7mbbl to 150.8mbbl, but still up on year ago levels.

The drop in gasoline inventories helped crude recover some of yesterdays losses, with sweet light crude for May delivery rising by US¢86 to settle at US$107.11/bbl on the NYMEX, despite a brief slip in response to President Obama’s call for an overhaul in the US tax code for individuals and businesses with the aim of raising an additional US$1tn in tax increases over the next decade. ICE Brent Crude climbed US$1.96, or 1.6% to finish at US$122.88/bbl. Additional momentum came from the news that US retail sales rose in March for the ninth consecutive month, up 0.4%, following February’s 1.1% gain.

Analysts at Barclays Capital have said in a research note that “In our view, high oil prices are yet to show any considerable impact on oil demand, either in the OECD or in the non-OECD.” They also have expressed doubts regarding the news that Saudi Arabia has reportedly reduced production due to weak demand and estimate that it is currently producing between 9 and 9.5mbpd.

A meeting in Qatar to discuss the situation in Libya, is showing signs of being less than productive, with NATO members at loggerheads over whether more airstrikes should be launched against Gaddafi’s forces. The US appears to be still be carrying out bombing runs on air defences, despite having announced a withdrawal of US combat aircraft from NATO operations several days earlier.

Rio Tinto has said that its 1Q2011 Australian thermal coal output was in line with that seen in 1Q2010, with higher production in New South Wales offsetting the impact of bad weather on operations in Queensland. The premium commanded by Richards Bay FOB over FOB Newcastle thermal coal has risen to US$2/t for the first time in four years, reflecting oversupply in the Asia-Pacific. Despite a temporary surge in buying by German utilities in recent weeks due to the shutdown of seven nuclear power plants, European physical coal demand has been weak in March. The premium on South African coal is expected to dissipate in the second half of the year, when Japanese demand is expected to recover. A May-loading South Africa cargo traded yesterday at US$123.50/t, while one for June loading was bid at US$122.50 and offered at US$124.00/t, down US$2.00.

US natural gas futures rose by 1.1% in response to the positive news regarding US retail sales in March and EIA predictions that industrial demand for gas will rise by 3.6% this year to 18.763bnft³pd. Natural gas for May delivery on the NYMEX rose by US¢4.3 to settle at US$4.141/mBtu, suggesting that last week’s 7.4% correction was overdone. Additional support came from a forecast from MDA Federal for lower temperatures in the Midwest and Northeast over the April 16-20 period and speculation over the possibility of a more active than usual Atlantic hurricane season.

Over in Japan, TEPCO purchased a record volume of LNG in March, to help offset the closure of the Fukushima Daiichi and Fukushima Dai-ni nuclear power plants. The utility bought 2.14Mt of the fuel, up 9.9% on year and TEPCO is looking to add 1000MW of gas turbines by July, to prevent further blackouts and offset the 9096MW of nuclear power currently shut-in. The company’s president, Masataka Shimizu, has expressed a desire to restart the No.3 nuclear reactor at the Kashizawaki-Kariwa nuclear power plant by the end of the year. The power plant experienced a number of issues from a 2007 earthquake, such as 50 incidences of radioactive water leakage and fire at a transformer.

The Dec11 EUA contract lost ground during most of Wednesday morning, as a weak energy complex exemplified by a near-1% drop in the value of the German baseload power contract, pulled it down to an intraday low of €16.50/t. Bargain buying in the afternoon allowed it to recover somewhat and providing the impetus for it to finish up 0.30% at €16.64/t. The regular German auction of 570,000 EUA futures on the EEX cleared at €16.62/t. The EU has released additional details regarding its proposed CO₂ tax on fuels used by sectors currently outside of the EU ETS, but these are reliant upon unanimous approval from EU member states, making the prospect of their successful introduction highly uncertain. Under current proposals, CO₂ emissions would be taxed at €20/t, while also taxing the “actual energy that a product generates” at €9.60/GJ for motor fuels and €0.15/GJ for heating fuels. The minimum tax on diesel would therefore rise from the current €0.33/l to €0.412/l in 2018, while the tax on gasoline would remain constant at €0.359/l. However, the majority of countries within the EU already have fuel taxes in excess of the EU minimum. EU taxation commissioner Algirdas Semeta has said that the plan could cut emissions by 92Mta.

CER Futures rose in Wednesday’s session with the Dec11 contract performing weakly, with a gain of 0.24%, compared to the 0.32% and 0.29% seen for the Dec12 and Dec13 contracts, respectively. The CER-EUA spreads were essentially unchanged, with the Dec11 and Dec12 spreads finishing the day at -€3.86 and -€4.87. The World Bank has reported that it has finished another sale of CERs from the UN Adaptation Fund, raising US$154m from 300,000 credits.