The price of gasoline climbed and crude hit a 1-month high in a 3-day rally before dropping slightly Feb. 27 on the New York futures market.
The April contract for US light, sweet crudes climbed to $45.22/bbl Feb. 26 on the New York Mercantile Exchange after the Energy Information Administration reported an unexpected large drop in US gasoline inventories, down 3.4 million bbl to 215.3 million bbl in the week ended Feb. 20. The same contract slipped to $44.76/bbl in the next session, the last for that short month, as the Department of Commerce reported the US gross domestic product fell 6.2% during the last quarter of 2008. That was the largest decline in GDP since the first quarter of 1982. Economists were expecting a decline of 3.8%.
"Yes, unemployment is high, but the lower gasoline prices seem to finally have an impact, and with jet [fuel] demand down 15.4% (237,000 b/d), it does seem that Americans are back to driving rather than flying," said Olivier Jakob at Petromatrix, Zug, Switzerland. He said, "Two thousand eight was the year of distillate vs. gasoline, and it looks more and more that 2009 will be that of gasoline vs. distillate. In that regard we need to keep in mind that refineries are currently on maintenance and that it is not unusual to have all sort of glitches when the units are brought on line."
In New Orleans, Pritchard Capital Partners LLC analysts said, "If gasoline price response continues, gasoline demand may push utilization up and continue to support crude prices and even pull some crude out of storage and reduce contango spreads seen across curve."
EIA data indicated US gasoline consumption in the 4 weeks through Feb. 20 was up 1.7% from year-ago levels.
Paul Horsnell at Barclays Capital Inc., London, noted US demand for gasoline has been relatively robust in the face of the economic cycle compared with diesel and jet fuel demand, which have been far more negatively affected. "Gasoline inventories are much lower year-over-year and demand is improving, while distillate inventories are much higher year-over-year and demand is not improving," he said.
However, Larry Goldstein, a director at Energy Policy Research Foundation (EPRINC), said EIA is comparing the latest 4 weeks of preliminary data with final revised data from a year ago and getting the wrong figures. "The correct comparison is [preliminary] weekly against [preliminary] weekly," Goldstein told OGJ. "That will show a measurable improvement in the decline rate but still a modest decline from negative 3.5% several months ago to about ½% decline over the last 4 weeksa major improvement but still modestly negative," he said.
OPEC is 'adamant'
Members of the Organization of Petroleum Exporting Countries "remain adamant about compliance of supply cuts and will likely cut production quotas further next month," said analysts in the Houston office of Raymond James & Associates Inc. However, they said, "The biggest driver remains the economic uncertainty and its effect on demand."
Raymond James reduced their oil price forecasts to $43/bbl from $60/bbl for 2009 and to $65/bbl from $80.bbl in 2010 "due to the severity of the global economic meltdown and bloated inventory levels at Cushing, [Okla.]," key delivery point for US crude. They said, "Non-OPEC supply has peaked, while demand will eventually recover. If such a recovery occurs in 2010, our forecast will move much higher."
Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "Additional OPEC cuts and more convincing signs of an economic upturn are required to stabilize oil prices. Since we expect the G7 [industrialized nations: Canada, France, Germany, Italy, Japan, UK, and US] will require additional fiscal stimulus packages to support growth, we remain skeptical of near-term crude oil price rallies."
But at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, "There is a sense that the [oil] market might be starting to tighten."
At Barclays Capital, Horsnell noted the recent sharp reduction of US crude imports. "The data also show the first week of imports below 5 million b/d into the Gulf Coast since the height of the hurricane disruption. The figures may well show occasional blips as the remaining floating storage dissipates and partially enters the data, and trends in time structure and tanker rates suggest that that process is likely to gain pace," he said. However, Horsnell said, "Despite the scope for temporary boosts to imports while the amount of floating storage is reduced, we would still expect to see a fairly prolonged period of year-over-year crude oil import compression to set in."
(Online Mar. 2, 2009; author's e-mail: email@example.com)