MARKET WATCH: Natural gas prices escalate on bullish inventory report

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 29 -- Crude contract prices inched up Apr. 28 in the New York market as the US dollar weakened, but the new front-month natural gas contract jumped 4% after the Energy Information Administration reported a smaller-than-expected increase in US gas storage.

“The broader market rose 0.4% as strong earnings results pushed the Dow Jones Transportation Average to an all-time high,” said analysts in the Houston office of Raymond James & Associates Inc. Energy stocks were mixed, however. The broader market, crude, and natural gas climbed higher in early trading Apr. 29, Raymond James reported.

EIA reported the injection of 31 bcf of natural gas into US underground storage in the week ended Apr. 22, less than the consensus estimate of 37 bcf input. That increased working gas in storage to 1.7 tcf. That’s 215 bcf less than in the same period last year and 11 bcf below the 5-year average (OGJ Online, Apr. 28, 2011).

Meanwhile, the Department of Energy lowered EIA’s weekly estimates of total US petroleum demand in February down sharply by 600,000 b/d—“the largest downward revision since May 2010,” said Olivier Jakob at Petromatrix, Zug, Switzerland. It revised gasoline demand lower by 350,000 b/d for that month.

“That leaves gasoline, distillates, and overall demand unchanged in February vs. a year ago and on average for the first 2 months of the year,” Jakob said. “US demand of petroleum products is down 1.2 million b/d vs. 2008 and up 285,000 b/d vs. a year ago.”

He reiterated, “At current price levels the main downside risk comes from demand destruction. This for now has not been visible in the transitory weekly statistics, but the sharp downward revisions made to those numbers need to be taken as a strong bearish flag.”

Furthermore, Jakob said, “On the other side of the Atlantic the first estimates for Spanish petroleum sales in March are as alarmingly low as the numbers released earlier for Italy. Gasoline sales in Spain were in March down 12.7% vs. last year while Diesel sales were down 6.8%. For the first quarter, sales of gasoline in Spain were down 6.9% vs. last year and sales of diesel down 2.2%.” Meanwhile, unemployment in Spain is at the highest level in 14 years.

Jakob said, “The French diesel sales in March were surprisingly strong, but we understand that this is due to a transfer of agricultural and heavy machinery usage of heating oil to low sulfur diesel (mandatory as of the start of May 2011) and is therefore not representative of a real demand increase (i.e. the higher French diesel sales in March are offset by lower sales of high sulfur distillates during the new mandatory switch of ‘Fuel Oil Domestique’ to ‘Gazole Non Routier’ for heavy machinery and tractors).”

In addition, Jakob said, “The DOE monthly update is showing that US exports of gasoline remain high even if off the peaks seen in December. US gasoline prices at the pump might be back to the levels of the summer 2008, but in the first 2 months of 2011 gasoline exports from the US were 2.5 times higher than in 2008.”

He noted, “Current gasoline stocks in the US are 17 million bbl below the levels of a year ago, but in the 3-month period from December to February the US exported 17 million bbl more gasoline than a year ago. The mathematics are relatively simple, but politically it is much easier for the US President to claim that ‘we cannot do anything about high gasoline prices’ apart from blaming speculators.”

Energy prices
The June contract for benchmark US light, sweet crudes traded as high as $113.97/bbl Apr. 28 on the New York Mercantile Exchange before closing at $112.86/bbl, up 10¢ for the day. The July contract inched up 6¢ to $113.34/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 10¢ to $112.86/bbl.

Heating oil for May delivery dipped 0.18¢, but its closing price was essentially unchanged at a rounded $3.23/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.04¢ to $3.43/gal.

The new front-month June contract for natural gas escalated 16.3¢ to $4.57/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 8.7¢ to $4.44/MMbtu.

In London, the June IPE contract for North Sea Brent crude dropped 11¢ to $125.02/bbl. Gas oil for May gained $14 to $1,038.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes advanced $1.55 to $120.90/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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