MARKET WATCH: Crude oil tops $86/bbl for 18-month high

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 6 -- The front-month crude oil contract jumped above $86/bbl Apr. 5 to the highest price since Oct. 8, 2008, in the New York market with industry and government data indicating the US economy is on its way to recovery.

“Crude posted a solid gain of 2% mainly due to the dollar's weakness and better-than-expected housing data,” said analysts in the Houston office of Raymond James & Associates Inc.

The natural gas futures price jumped by 4.7% “in anticipation of stronger industrial demand for the fuel,” said analysts at Pritchard Capital Partners LLC in New Orleans. However, both crude and gas were relatively flat in early trading Apr. 6.

When the market was closed Apr. 2 for the Good Friday holiday, the US Department of Labor reported 162,000 new jobs, including 48,000 temporary workers employed for the census survey—the largest gain in more than 3 years, said Raymond James analysts.

Pritchard Capital Partners reported, “The Institute for Supply Management index for nonmanufacturing businesses also rose to 55.4 in March from 53 in February, exceeding the consensus estimate of 54.”

They said, “The euro has lost roughly 10% of its value vs. the dollar since December, when the severity of Greece’s financial problems increased and, more recently, when the International Monetary Fund cut its growth forecasts for Germany.”

Olivier Jakob at Petromatrix, Zug, Switzerland, noted, “West Texas Intermediate has risen about $7/bbl in 5 days and that makes $90/bbl a possible technical target if the momentum can be maintained for a few more days. However, with the gasoline crack eroding in the flat price rally, we would not want to be long at $90/bbl WTI as price reversals could be quick once the speculative profit-taking starts to kick in (technical markets tend to fall faster then they rise).”

Jakob said, “Higher oil prices will be felt at the fuel pump, and the gasoline crack continues to erode but with some shift to the heating oil crack. Winter has been long and tough, and the European consumer has drawn down stocks, but we remain skeptical about the rate of replenishment that will take place at current prices when unemployment in Europe has not yet peaked.”

He said, “The challenge for technical and momentum traders is to maintain a momentum trade in an insecure fundamental picture that can trigger reversal in exogenous markets. That is making for trades that have shorter time duration.”

Meanwhile, the Wall Street Journal reported Apr. 5 the US Department of Energy has discovered it has been overstating its monthly US natural gas production data and is preparing to make large revisions. It said the DOE’s Energy Information Administration uncovered a fundamental flaw in its method of data collection that does not reflect production swings among hundreds of smaller producers. It said EIA plans to change methodology this month. An earlier review of EIA's weekly oil inventory report also uncovered errors, news sources said.

Energy prices
The May contract for benchmark US sweet, light crudes climbed $1.75 to $86.62/bbl on the New York Mercantile Exchange. The June contract gained $1.79 to $87.13/bbl. In a rare move on the US spot market, WTI at Cushing, Okla., pulled ahead of the front-month crude futures price, up $1.95 to $86.82/bbl. Heating oil for May delivery escalated by 5.08¢ to $2.27/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased by 2.65¢ to $2.35/gal. The May natural gas contract jumped by 19.1¢ to $4.28/MMbtu on NYMEX.

In London, the May IPE contract for North Sea Brent crude was up $1.87 to $85.88/bbl. Gas oil for April gained $17 to $721/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased by $1.38 to $81.31/bbl. So far this year, OPEC’s basket price has averaged $75.65/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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