MARKET WATCH: Crude continues gains on New York market

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 23 -- Front-month crude prices continued a modest rally in volatile trading Apr. 22 on the New York market, buoyed primarily by the strengthening equity market and better-than-expected first-quarter earnings among a few key companies.

It was an "impressive intraday upside reversal in the face of US dollar strength vs. the Euro" and a bearish report of US inventories, said analysts at Pritchard Capital Partners LLC, New Orleans.

In Houston, analysts at Raymond James & Associates Inc. said, "We expect investors to be listening closely to the multitude of conference calls (among producers and service companies) today to get a feel for just how bad activity in the oil patch can get. Given our expectation for a natural gas meltdown this summer, we continue to have one of the more bearish views on Wall Street in regards to domestic activity and most of the stocks."

The Energy Information Administration said Apr. 22 commercial US crude inventories continued to climb in the week ended Apr. 17, up 3.9 million bbl to 370.6 million bbl. Gasoline inventories increased 800,000 bbl to 217.3 bbl in the same week. Distillate fuel inventories advanced by 2.7 million bbl to 142.3 bbl (OGJ Online, Apr. 22, 2009).

Total US inventories have increased 65 million bbl so far this year and stand 115 million bbl above year-ago level, said Olivier Jakob at Petromatrix, Zug, Switzerland. "Crude oil supplies remain too high compared to the levels of [refinery] runs and the levels of runs remain too high compared to the level of demand. On the 4-week average (unrevised basis) total US petroleum demand is down more than 2.2 million b/d vs. last year," he said.

Jakob said, "We are getting closer to the point where the weekly visible stock build will lessen purely because storage capacity will be fully utilized. Crude oil [inventory along] the US Gulf has built further and is now only 3 million bbl away from its all-time high. Stocks of clean products (gasoline, distillates, jet fuel) "are 17 million bbl away from their all-time high." He added, "When the product builds will lessen due to lack of storage space then the visible demand number will start to stabilize (in the real economy stocks [of] floating cargoes might increase, but they will not be visible to a large part of the market)."

In other news, US home prices rose in February for the second consecutive month, according to the Federal Housing Finance Agency. On Apr. 23, however, the National Association of Realtors said home sales were down 3% in March to an annual rate of 4.57 million units, from a downwardly revised rate of 4.71 million units in February. Sales had been expected to fall to an annual pace of 4.7 million units.

In a separate report, the US Department of Labor said initial claims for unemployment compensation rose more than expected to 640,000 in the week ended Apr. 17, up from a revised 613,000 the prior week. The number of people currently claiming unemployment benefits totaled 6.12 million, a record high for the 12th consecutive week.

Energy prices
The new front-month June contract for benchmark US sweet, light crudes gained 30¢ to $48.85/bbl Apr. 22 on the New York Mercantile Exchange. The July contract increased 9¢ to $50.70/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., jumped by 84¢ to $47.35/bbl as it began adjusting to the new front-month NYMEX contract. However, heating oil for May deliver lost 1.79¢ to $1.33/gal on NYMEX. The May contract for reformulated blend stock for oxygenate blending (RBOB) dropped 2.38¢ to $1.39/gal.

Natural gas for the same month gained 2.1¢ to $3.53/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 3¢ to $3.50/MMbtu. Gas prices "appear to be holding up fairly well at current levels (around 6-year lows), despite negative news and historically high US inventory levels," said Pritchard Capital Partners.

The EIA reported the injection of 46 bcf of natural gas into US storage in the week ended Apr. 17. That pushed working gas in storage above 1.7 tcf, up 459 bcf from year-ago level and 322 bcf above the 5-year average. Some observers expect a meaningful reduction in gas supplies in the late second or third quarter in response to the sharp drop in domestic drilling activity this year.

In London, the June IPE contract for North Sea Brent crude dipped 1¢ to $49.81/bbl. Gas oil for May dropped $4.75 to $424.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained 2¢ to $48.51/bbl on Apr. 22.

Contact Sam Fletcher at samf@ogjonline.com

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