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Gasoline, crude futures sink as U.S. supply climbs

By Myra P. Saefong, MarketWatch
Last Update: 11:31 AM ET May 3, 2006

SAN FRANCISCO (MarketWatch) -- Crude-oil prices fell under $74 per barrel and gasoline futures lost as much as 3% Wednesday after a U.S. government report showed the first climb in motor gasoline supplies in nine weeks and said crude inventories stood at their highest level in eight years.

Iran and other global trouble spots moved into the backdrop following the supply data, but traders continued to eye the newswires.

The climb in gasoline supply is likely due to "to refineries getting rid of their wintertime supply of blended gas (winter-grade gasoline) and making way for the summer gasoline grade," said commodities trader Kevin Kerr.

Kerr, who also edits Global Resources Trader, a newsletter service of MarketWatch, the publisher of this report, said the market is likely missing supplies of the blending material, ethanol.

"This build is likely the last one we will see in gasoline for a long, long time," he said. "This is giving the market a decent breather, but it will be short lived."

"The ethanol specifications will continue to hamper gasoline supplies," he said, referring to certain fuel requirements that have come into effect this month. And with "hurricane season with three refineries already down -- it could be a very long summer."

Crude for June delivery was last trading down 96 cents at $73.65 a barrel on the New York Mercantile Exchange, after earlier touching a high of $74.99 in electronic trading. The contract was trading close to the front-month futures record of $75.35 hit on April 21.

June unleaded gasoline fell 4.76 cents to $2.1275 per gallon, falling as low as $2.1125. June heating oil also lost 2.78 cents to $2.051 a gallon.

Early Wednesday, the Energy Department said crude supplies rose 1.7 million barrels for the week ended April 28, to total 346.7 million -- their highest level since May 29, 1998. They are 5.3% above the year-ago level.

The American Petroleum Institute separately reported that crude supplies rose 2 million barrels to 346.9 million.

Motor gasoline supplies climbed 2.1 million barrels last week "due to a large build in blending components," the Energy Department said. It was the first rise in the fuel's supplies in nine weeks, according to government data, following a drop of more than 25 million barrels in eight weeks. The report tallied total supplies at 202.7 million, or 4.8% below the year-ago level.

Supplies of the motor fuel were up 4 million at 206.5 million, according to the API.

Meanwhile, distillates, which include heating oil and jet fuel, fell 1.1 million to 114.5 million, or 9.6% above the year-ago level, according to the Energy Department. They fell by 1.3 million to 114.6 million, according to the API.

Global supply risks

Crude has gained almost $3 in the past two trading sessions, pushed up by Iran's nuclear standoff and weekend violence in Nigeria.

In the latest news from Iran, U.S. Under Secretary of State Nicholas Burns said he expects a meeting of the U.N. Security Council and Germany next week to forge a binding resolution on Iran that could allow for sanctions.

Burns made the comments after diplomatic talks in Paris yesterday to discuss the Iranian issue.

On Tuesday, Iranian Foreign Minister Manuchehr Mottaki said Russia and China have told Iran they will veto any resolution that involves sanctions or military action. That could create a rift between the permanent Security Council members - Russia, China, France, the U.K. and the U.S.

Elsewhere, the presidents of Brazil, Bolivia and Venezuela are scheduled to hold crisis talks today aimed at diffusing tensions created by Bolivia's decision to nationalize its oil and natural-gas industries, according to media reports. Brazilian oil giant Petrobras (PBR :last: 99.82-2.35-2.30%) and Spain's Repsol SA (REP :REP29.35, -0.47, -1.6% ) are the two biggest foreign investors in Bolivia's oil and gas sector.

"Brazil, of course is a bit miffed, as they and their oil companies have invested heavily in Bolivia and is concerned as Bolivia supplies half of Brazil's natural-gas consumption ... ," said Phil Flynn, a senior analyst at Alaron Trading.

Natural gas slips

Elsewhere in the energy sector, June natural gas lost 7.6 cents at $6.67 per million British thermal units ahead of the market's own update on U.S. supplies due out Thursday.

Analysts at Fimat USA expect the Energy Department Thursday to report that natural-gas supplies rose 78 billion cubic feet for the week ended April 28, though estimates range between a climb of 45 and 90 billion.

If price support levels continue to hold as May passes, "rising concern about the approaching hurricane season and mounting cooling demand could make this a temporary bottom for the market; the next two weeks are key," said John Kilduff, an analyst at Fimat.

In Wednesday's energy-linked equities trading, benchmarks tracking the oil and gas sectors were lower, with the Oil Service Index ($OSX230.07, -4.91, -2.1% ) losing the most ground. See Energy Stocks.

In other commodities trading, gold futures pulled back from a high of almost $680 an ounce Wednesday. That was the highest price in almost 26 years. See Metals Stocks.

Taking a broad measure of the commodity-futures markets, the Reuters/Jefferies CRB Index was down 0.9% at 373.85 points on the New York Board of Trade. See more of the latest prices for commodity futures. End of Story