MARKET WATCH: Energy prices escalate with hopes to ease European crisis

Energy prices escalated Sept. 27 despite no apparent change in market fundamentals, with crude making an amazing jump of 5.3% to recoup most of last week’s losses in the New York market. Natural gas was up 1.2% as it too followed a rally in the broader market on signs of progress in the Euro-zone sovereign debt crisis.

“One would think that Europe's debt crisis, domestic austerity, and global economic malaise are now nonstarters. But what has really changed since last week? Aside from ‘le Tarp’ [the Euro-zone bailout plan] in Europe, the ‘Buffett rule’ [the administration’s proposal to raise taxes on the wealthy] in the States, and an artificial range increase for [China’s] yuan that smacks of currency manipulation, not much; and with short positions at a post-March 2009 high, investors seem to be taking advantage of the calm before the storm,” said analysts in the Houston office of Raymond James & Associates Inc.

They reported the Standard & Poor’s 500 index was higher during early trading Sept. 28 “in anticipation of another round of German-led bailouts.” Crude futures were down 1%, and gas futures were trading flat.

James Zhang at Standard New York Securities Inc., the Standard Bank Group., said, “Gasoline cracks strengthened yesterday from a recent decline, despite a large inventory build in US gasoline reported by the American Petroleum Institute. The term structures for both Brent and West Texas Intermediate remained largely unchanged.”

Zhang reported, “The European Union commission appeared to push on with the idea to bolster the European Financial Stability Fund (EFSF), and the Greek parliament passed a new tax on properties.” Nonetheless, he said, “We view the very strong rally across both the equity and commodity markets as more of a relief rally that is unlikely to be sustained. Although a bigger EFSF fund might buy some more time for Euro-zone policymakers, it is not sufficient to resolve the current crisis. Germany is to vote [Sept. 29] whether to agree to an expansion of the EFSF, which will be a key event for the market.”

Zhang said, “We expect the oil price to remain under pressure from both the ongoing Euro-zone debt crisis and the deteriorating global economy. Volatility is expected to remain elevated. Refining margins and the Brent structure are likely to weaken, while we see the WTI structure firming on further inventory draws at Cushing, Okla.”

In other news, the Buzzard field in the North Sea was reported to have ramped up production to 180,000 b/d, still below its previous production rate of 200,000 b/d.

US inventories

The Energy Information Administration reported Sept. 28 commercial US crude inventories increased 1.9 million bbl to 341 million bbl in the week ended Sept. 23, just above average for this time of year but short of Wall Street’s consensus for a 2.1 million bbl gain. Gasoline stocks were up 800,000 bbl to 214.9 million bbl, also above average but short of market expectations of a 1 million bbl increase. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories rose 100,000 bbl to 157.7 million bbl, contrary to analysts’ consensus for a 400,000 bbl decrease.

Imports of crude into the US increased by 1.4 million b/d to 9.7 million b/d last week. In the 4 weeks through Sept. 23 crude imports averaged 8.8 million b/d, down 277,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 541,000 b/d while distillate fuel imports averaged 150,000 b/d.

The input of crude into US refineries was down 130,000 b/d to 15.2 million b/d last week with units operating at 87.8% of capacity. Gasoline production increased to 9.3 million b/d while distillate fuel production increased to 4.6 million b/d.

Energy prices

The November contract for benchmark US light, sweet crudes jumped $4.21 to $84.45/bbl Sept. 27 on the New York Mercantile Exchange. The December contract escalated $4.20 to $84.68/bbl. On the US spot market, WTI at Cushing remained in step with the front-month crude futures price, up $4.21 to $84.45/bbl.

Heating oil for October delivery climbed 8.51¢ to $2.88/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month continued its advance with a remarkable 1-day gain of 12.61¢/gal.

The October contract for natural gas continued to rally, up 4.5¢ to $3.83/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 11¢ to $3.92/MMbtu.

In London, the November IPE contract for North Sea Brent gained $3.20 to $107.14/bbl. Gas oil for October increased $16.25 to $906.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained $2.72 to $104.53/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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