Crude ends quarter at 17-month high

Sam Fletcher
OGJ Senior Writer

The front-month contract for benchmark US light, sweet crudes closed at a 17-month of $83.76/bbl Mar. 31 on the New York Mercantile Exchange on a weaker dollar and momentum from earlier gains. It pushed even higher Apr. 1 to $84.87/bbl on indications of economic recovery, up for the fourth consecutive session.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “West Texas Intermediate is trying to be priced at the same level as in early 2008, but back then we were at multiyear lows in terms of unemployment while today we are at a multiyear high in unemployment. It will take many months of very strong job growth to reverse the job losses of 2009, and that will not be done by the summer of 2010.”

The Energy Information Administration earlier reported commercial US crude inventories increased by 2.9 million bbl to 354.2 million bbl in the week ended Mar. 26—the latest period at presstime—surpassing the Wall Street consensus for a 2.5 million bbl gain. Gasoline stocks rose 300,000 bbl to 224.9 million bbl vs. expectations of a 1.9 million bbl draw. Distillate fuel inventories fell 1.1 million bbl to 144.6 million bbl, short of the consensus for a 1.4 million bbl decline (OGJ Online, Mar. 31, 2010).

But those statistics were “nothing to cheer about,” Jakob said. “Total stocks increased by 3.2 million bbl, with stocks of crude and clean petroleum products increasing by 1 million bbl to levels that are 6 million bbl above last year’s high level and 75 million bbl above the levels in 2008 for the same week,” he said.

Inventories of crude along the US Gulf Coast continued to increase, following the supply patterns of last year. Crude stocks in Cushing, Okla., had “a small build” and were at par with year-ago levels, while other crude stocks in the Midwest outside of Cushing “had a more significant build,” Jakob said. Crude imports from Canada into the Midwest were at a high level offsetting some of the lower numbers seen in the previous 3 weeks, he said.

“Crude oil refinery runs are gently being increased to levels closer to 2008, and gasoline production is rising to a multiyear high for the season. With gasoline trading at a very high premium to ethanol, we would expect that biofuel blending will continue to be maximized to all available limits,” said Jakob. Markets were closed Apr. 2 for Good Friday ahead of the Easter holiday weekend.

Gas hits 2-month high
The front-month natural gas contract shot up 21.7¢ to $4.09/MMbtu Apr. 1 on NYMEX after the EIA reported the injection of 12 bcf of natural gas into US underground storage in the week ended Mar. 26. That was the second injection within two consecutive weeks, marking an early end to winter demand. But the futures price rose the highest since Feb. 1 because the injection was below the consensus estimate of a 17 bcf input. It increased working gas in storage to 1.638 tcf, down 16 bcf from year-ago levels but 160 bcf above the 5-year average.

“While colder weather depleted the year-over-year storage surplus earlier this year, the market has been on a loosening trend lately,” said analysts in the Houston office of Raymond James & Associates Inc. With only 1 week then left in the winter demand season and forecasts for warmer weather, the market was on track to end winter storage at 1.64 tcf, “just below last year's close,” they said.

Analysts at Barclays Capital Research, a division of Barclays Bank PLC, London, reported, “UK gas prices came off 14% in March compared with the February average, pressured by demand retreating due to warmer temperatures, longer day-length, and spot prices finishing the month at $4.71/MMbtu. With winter coming to an end, supply is going to replace demand as a price driver. For the summer period, the focus is on the competition between pipeline gas and LNG for market share.”

They said, “LNG arbitrage between US and UK prices has brought convergence between the two markets, and since the beginning of the year National Balancing Point gas in the UK has been trading at a small premium to Henry Hub[, La.] (40¢/MMbtu). For this summer, we believe LNG in the UK needs to ease, and NBP should then trade at parity with Henry Hub. In the fourth quarter, when demand becomes stronger, we believe the UK could attract more LNG and trade at a slight premium to Henry Hub.”

(Online Apr. 5, 2010; author’s e-mail: samf@ogjonline.com)

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