China (Platts) -- Mar 31-April 4, 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.

Crude oil futures were caught in a tug-of-war between gasoline and heating oil last week. Those strong opposing forces were largely behind a very volatile week for light sweet crude oil futures. Gasoline is in general weighed down by a lush level of inventories, and middle distillates are being propped up by tight supply and demand balances.

Ultimately crude futures ended the week at $106.23 per barrel, up a deceptively steady-looking half a percent from the week before. Almost all other oil futures ended the week up by around 1% in value -- although heating oil futures closed down 3.6%, suffering from a contract expiry early in the week, while natural gas futures closed the week down 5%.

"US oil stockpiles remain alarmingly lopsided, with both an ominous overhang in gasoline inventories and too-tight-for-comfort stocks of both crude, middle distillates," Antoine Halff, energy analyst at NewEdge, said in a report.

But, he added, "data for the week ending March 28 show rebalancing on both fronts: on the one hand, a nascent recovery in crude stocks is picking up momentum, while on the other hand the gasoline stock surplus appears to be melting away even faster than [they] had appeared."

US gasoline stocks at 224.71 million barrels the week ending March 28 were 18.393 million barrels above the five-year average, according to US Energy Information Administration data. Total US distillate stocks at 109.7 million barrels were on par with the five-year average and 8.3 million barrels below year-ago levels.

Refinery issues in the US pushed product prices higher in general, particularly heating oil. Friday was a typical day for the US' creaking refineries. A fire broke out at ExxonMobil's 149,500 barrels per day facility in Torrence, California. Meanwhile, a 36,000 barrels per day hydrocracker at Valero Energy's refinery in Benicia, California, near San Francisco, will be down for 10 days to two weeks due to a leak on a related piece of equipment, a company spokesman said.

High stocks can't keep gasoline away from record

A remarkable feature last week was the fact that RBOB gasoline rallied to settle at an all-time high of $2.7736 per gallon April 2, after the US Energy Information Administration showed US gasoline stocks falling by 4.5 million barrels.

The gasoline stock draw was the third consecutive weekly drop in inventories, bringing the cumulative decline to 10.81 million barrels, but leaving stocks at a still comfortable surplus against the averages.

Most importantly, implied gasoline demand jumped 214,000 barrels per day to 9.33 million barrels per day week-over-week, although analysts are quick to point out that implied demand data is not always a very good indicator of actual consumption -- particularly with a switch out of winter-grade gasoline.

Considering the time of year, the likeliest explanation for the increase in implied demand was movement of winter grade gasoline through the system ahead of the switch to summer grade.

US Senate examines role of speculators in oil

With oil still within touching distance of the record high levels seen in March, members of a Senate panel on April 3 pressed the Commodity Futures Trading Commission's top economist and other market analysts whether regulations should be tightened for non-commercial traders who speculate in oil markets -- and whether such investors should even be allowed to buy crude oil futures.

Jeffrey Harris, chief economist for the CFTC, told the Energy and Natural Resources Committee that there was little evidence that changes in speculative behavior were affecting oil prices and keeping crude prices above $100 per barrel in recent weeks. Harris expressed confidence that CFTC's analysis of crude oil markets was reliable, and he said a variety of foreign agencies that monitor crude prices had arrived at the same conclusion.

Most of the other panel members testifying before the committee also viewed the role of speculators in driving up prices as limited.

Yet senators were skeptical of that view. Ranking Republican Pete Domenici of New Mexico said the committee should not accept the view that "speculators are not playing much of a role. Things are hunky-dory over at your place, Mr. Harris. I'm not sure of that. I don't think things are hunky-dory."

Domenici asked Harris and others why they did not support eliminating all non-commercial trading, as a yet-to-be introduced bill in the House would do.

Senator Byron Dorgan, Democrat-North Dakota, also expressed exasperation with the pressure he said speculators place on the price of crude oil: "There is not justification for the price of oil to be where it is. It's about $20 to $30 above where it should be because this is a 24/7 casino with unbelievable speculation."

Dorgan advocated increasing the investment margin requirements to "get the speculators out of the system."

Sara Emerson, a managing director at Energy Security Analysis, said that speculation was having a small effect on oil prices, perhaps in the $10 or $20 range. Senator Maria Cantwell, Democrat-Washington, said that was enough to spark concern." For a lot of families, even that makes a big difference," she said.

Another Asian nation turns into net importer

As the debate raged in Washington, a fast-growing appetite for refined products to fuel its economic boom coupled with steadily declining crude production turned yet anther Asian nation -- Vietnam -- into a net oil importer.

The country exported about 3.49 million mt of crude and imported some 3.66 million mt of refined products in the first quarter of this year, government statistics showed, translating to a net inflow of 170,000 mt of oil into the southeast Asian country over the period.

Vietnam exports its entire light sweet crude production and imports all its oil product requirements as it does not have a refinery.

The country's crude output has been steadily declining. Vietnam's 3.49 million mt of crude exports over January-March (about 281,117 barrels per day) were down 10% from the 3.88 million mt it sold overseas in the first quarter of 2007.

The volume was nearly 18% lower versus the corresponding period of 2006, data from Vietnam's General Statistics Office showed.

Product imports, in contrast, climbed 21.6% to 3.66 million mt in the first quarter compared with the same period of 2007. Pitted against first quarter 2006, the import volume was a spectacular 42% higher.

OPEC rules out impromptu meeting in Rome

Finally, oil exporting group OPEC will not hold a formal meeting on the sidelines of the International Energy Forum meeting in Rome later this month, a senior Gulf source familiar with Saudi policy said April 3.

"There will be no OPEC meeting in Rome," he said. "The oil market is well balanced with plenty of supply and enough spare capacity," he said, adding that the market situation was "very comfortable" and "stocks are starting to build."

OPEC ministers last met in Vienna March 5 but decided to leave official output targets unchanged at 29.673 million barrels per day, despite crude prices in excess of $100/barrel, saying the oil market was "well supplied" and that oil prices did not reflect market fundamentals.

The group's next conference is scheduled for September, but several ministers had suggested that OPEC could meet on the sidelines of the April 20-22 meeting of the IEF, which will bring together in the Italian capital the world's leading oil producing and consuming countries.

The Gulf source said the IEF meeting would "discuss the issue of the stability of the oil market and how we can work together to ensure a stable market."

Updated: April 7, 2008