MARKET WATCH: Crude, gas prices advanced as dollar declined

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 29 -- The front-month crude contract regained 1% Apr. 28 from the previous session’s loss in the New York market as the US dollar declined after the Federal Open Market Committee, the policy-making arm of the Federal Reserve Bank, again said it will keep the federal funds rate near zero for an extended period.

“Despite another major debt downgrade yesterday (Spain to AA from AA+), the broader market showed surprising resilience as the Dow Jones Industrial Average ended the day up 53 points (0.5%),” said analysts in the Houston office of Raymond James & Associates Inc. “The bulls were supported by a slew of positive corporate earnings releases, as well as the Fed's announcement.”

Natural gas was up 1.3% to “the highest close since Apr. 5, on anticipation that strengthening US economy and currently attractive natural gas prices will induce more demand for the fuel,” said analysts at Pritchard Capital Partners LLC in New Orleans. Both oil and gas prices continued to rise in early trading Apr. 29.

US inventories
The Energy Information Administration reported the injection of 83 bcf of gas into US underground storage in the week ended Apr. 23. That put the amount of working gas in storage over 1.9 tcf, up 101 bcf from a year ago and 303 bcf above the 5-year average.

EIA earlier said commercial US inventories of crude increased 1.9 million bbl to 357.8 million bbl that same week—“the highest level since June 2009,” said Pritchard Capital Partners. Gasoline stocks fell 1.2 million bbl to 223.7 million bbl. Distillate fuel inventories gained 2.9 million bbl to 151.8 million bbl (OGJ Online, Apr. 28, 2010).

It was “the highest weekly stock-build in 48 weeks,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Overall, the US has built 30.5 million bbl over the last 4 weeks, i.e. it is building at a rate of 1.1 million b/d. For the similar week, total US petroleum stocks are now only 6.4 million bbl below the high levels of 2009 and 105 million bbl above 2008.”

Stocks of crude and clean petroleum products “are now at a multiyear high irrespective of the week of measurement,” Jakob said. “The last time crude oil was in backwardation was 2008, and the US would have to draw more than 100 million bbl before it gets back to the stock levels of that year.”

He noted, “There was a small draw in gasoline stocks, but a draw this time of the year is a seasonal pattern; hence, that still leaves the gasoline stocks at a recent years high for the season, and the gasoline days-of-cover are at the highest level for the same week since 2002.”

Crude stocks in Cushing, Okla., and the rest of the Midwest continue to build slowly, “and with the current contango, there is little reason to expect the trend to change,” said Jakob. “Crude stocks in the Midwest are at a new record high; with the additional pipeline fill from the Canadian pipelines and the additional storage tanks that have been built in Cushing we should be printing in 2010 a series of record highs for the Midwest crude stocks,” he said.

US refinery runs in the 4 weeks through Apr. 23 were 465,000 b/d higher than a year ago but crude supply is up 410,000 b/d. “Hence, the crude system is well balanced,” said Jakob. “On the other hand, demand for product is only 200,000 b/d higher. Likewise, refinery runs are unchanged vs. 2008, but demand for products is still down 1 million b/d. The equation then translates into stock-building, which is the logical manifestation of a system with spare upstream and downstream capacity in a market structure that gives an economic incentive to produce for storage.”

Energy prices
The June contract for benchmark US light, sweet crudes regained 78¢ to $83.22/bbl Apr. 27 on the New York Mercantile Exchange. The July contract increased 67¢ to $85.67/bbl. On the US spot market, WTI at Cushing was up 78¢ to $83.22/bbl. Heating oil for May delivery continued to slip, down 0.13¢, but closed virtually unchanged at an average $2.23/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.59¢, but it too closed virtually unchanged at $2.33/gal.

The May natural gas contract escalated 5.5¢ to $4.27/MMbtu on NYMEX. Raymond James analysts wondered, “With natural gas power demand extremely sensitive to prices in the $4/Mcf range, how much coal-to-gas switching will be reversed with this higher expiration? Time will tell, but some incremental demand will definitely be lost.” On the US spot market, gas at Henry Hub, La., declined 1.5¢ to $4.22/MMbtu.

In London, the June IPE contract for North Sea Brent crude increased 38¢ to $86.16/bbl, still at a premium to WTI. Gas oil for May dropped $8.75 to $710.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 90¢ to $82.13/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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