Dark clouds over US economy bring welcome relief to energy importers

China (Platts) -- July 14 - 18, 2008

By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.

Oil and natural gas futures slumped by more than 11% around the world and almost across the board last week, giving a welcome break to energy consumers and importers.

With a strike in Brazil doing little to get in the way of production, the latest threat to world oil supply seemed to be unimportant, after all.

And meanwhile, reported stocks of most products suddenly swelled, as more was being put into inventory.

What sparked the decline -- and what saw it through -- was a very serious darkening of the clouds over the US economy.

US Federal Reserve chairman Ben Bernanke warned US lawmakers in the middle of the week to brace themselves for much deeper, and much longer-lasting economic challenged.

Energy futures around the world began to slide as Bernanke spoke in a televised review of the economy, and didn't stop falling after that.

US citizens consume one out of every four barrels of oil used around the world every day.

By the end of the week, light sweet crude oil futures were trading at $128.88 per barrel on the New York Mercantile Exchange, an historic $16 slump that sliced 11.2% off the value of crude oil futures.

Gasoline futures fell 11% in the US, while gasoil futures sank by 9.5% in the US and 8.5% in London.

NYMEX natural gas futures tumbled by 11.2% as well last week to close at $10.57 per million British thermal units after the Energy Information Administration reported that US gas stocks rose by a larger than expected 104 billion cubic feet.

Pax Saunders, analyst at Gelber & Associates, said the EIA report confirmed that mild weather has and will continue to dampen utility demand.

Distressed US economy clearly the trigger

Analysts were quick to point to the distressed US economy as a prime cause. "Today's price collapse of more than $10 off the early near-record highs indicates an oil market that is becoming more concerned about the impact of a rapidly deteriorating US economy than by a continued weakening in the US dollar," energy consultant Jim Ritterbusch said in a report in the middle of the week.

"In three weeks, despite still low refinery runs, gasoline stocks built by 5.5 million barrels nationwide (in the US), and 4.5 million barrels east of the Rocky Mountains, compared to average gains for the last five years of 300,000 barrels and 100,000 barrels, respectively," Antoine Halff, energy analyst at NewEdge, said in a report as the week ended.

"Distillate stocks are also building faster than the seasonal trends, though at 3.2 million barrels, compared to an average 2.5 million barrels in the last five years, the latest weekly distillate inventory gain is more closely in line with average patterns than that of gasoline," he added.

The Energy Information Administration reported a 3 million barrel build in US commercial crude stocks, a 2.5 million barrel build in gasoline inventories and a 3.2 million barrel increase in distillates.

Updated: July 21, 2008

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