MARKET WATCH: WTI price down; Brent up

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 10 -- Despite the weak dollar, the front-month contract price for benchmark US crude continued to decline, down 0.3% Feb. 9 in the New York market while North Sea Brent rebounded above $101/bbl in London, widening its record premium over West Texas Intermediate above $15/bbl.

Analysts in the Houston office of Raymond James & Associates Inc. reported the WTI price was brought down by a bearish government report of increased US inventories of crude and petroleum products. Brent on the other hand increased “on persistent concerns for the situation in Egypt.” They reported natural gas gained a marginal 0.1%. Prices for both crude and gas were down in early trading Feb. 10.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The term structures for WTI weakened further, while the term structures for Brent strengthened on the back of the divergence in flat prices of WTI and Brent.”

Zhang said, “Credit default swaps for the 5-year Egyptian government bond have reversed the recent declining trend, amid news reports of friction between the Saudi Arabian and US governments over the treatment of Egyptian President Hosni Mubarak, and fresh calls for further protests in the country. Adding to the concerns in the region is the news that a [very large crude carrier], carrying 2 million bbl of crude en route to the US Gulf Coast was hijacked yesterday off the coast of Oman. These events lent some support to the oil price.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The momentum on the Brent premium to WTI is not slowing down and reached yesterday a new extreme, widening by more than $2/bbl on the day. With the reformulated blend stock for oxygenate blending (RBOB) and heating oil crack debased from WTI and rebased to Brent (as an alternative to US Gulf Coast crude oil, where Light Louisiana Sweet is now trading at more than $16/bbl over WTI), the US consumer is not seeing any benefit from the US benchmark moving at record discount to Brent.”

Instead US motorists are paying at the pump “the same price as in early 2008, while the European consumer is paying the same price as in the summer of 2008 and the Chinese the highest price ever,” said Jakob. Moreover, he said, “We still have to consider what crude oil at $100/bbl can do to the demand for petroleum. The demand reaction to higher prices is always difficult to estimate (many leading economists thought in 2008 that oil at $170/bbl would not have any impact on oil demand) but should not be discounted.”

US inventories
The Energy Information Administration reported Feb. 10 the withdrawal of 209 bcf of natural gas from US underground storage in the week ended Feb. 4, exceeding the Wall Street consensus for a drop of 195 bcf. That left 2.1 tcf of working gas in storage. That is 98 bcf below the same period last year and 45 bcf below the 5-year average.

EIA earlier reported benchmark US crude inventories increased 1.9 million bbl to 345.1 million bbl in that same week, just below the Wall Street consensus for a 2 million bbl build. Gasoline stocks rose 4.7 million bbl to 240.9 million bbl, exceeding analysts’ expectations for a 2.6 million bbl increase. Distillate fuel inventories gained 300,000 bbl to 164.4 million bbl, while the market was anticipating a 1 million bbl decline, EIA officials said (OGJ Online, Feb. 9, 2011).

Government data show “demand for clean petroleum products is even lower than a year ago, which was already a multiyear low. It was snowing a lot last year in early February (that was when the term ‘snowmaggedon’ was invented), hence the current lack of demand growth can’t be blamed on the snow. US implied demand for clean petroleum stocks is lower than a year ago, but refinery runs are up 650,000 b/d, hence stocks continue to build,” Jakob said.

As a result, inventories “are fast approaching the multiyear highs for any season last seen in September of last year when the lack of hurricanes failed to produce any draws on stocks. The storage capacity in the US will soon start to be limited. [That’s] not something to really expect when prices are trying to test the level that triggers full demand destruction,” he said.

Energy prices
The March contract for benchmark US sweet, light crudes declined 23¢ to $86.71/bbl Feb. 9 on the New York Mercantile Exchange. The April contract eased down 14¢ to $90.10/bbl. Subsequent monthly crude contracts through March 2012 posted price increases that remained in contango. On the US spot market, WTI at Cushing, Okla., was down 23¢ to $86.71/bbl.

Heating oil for March delivery increased 3.71¢ to $2.77/gal on NYMEX. RBOB for the same month rose 3.18¢ to $2.53/gal.

The March contract for natural gas inched up 0.4¢ but was virtually unchanged at a rounded closing price of $4.04/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 11.5¢ to $4.13/MMbtu.

In London, the March IPE contract for North Sea Brent gained $1.90 to $101.82/bbl. Gas oil for February advanced $3.50 to $853.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 81¢ to $96.93/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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