The front-month crude oil contract rebounded 1% on Sept. 12 in the New York market, carried along by the rise in equities prices to regain much of its loss over the previous two sessions while natural gas dropped 0.8% on forecasts for milder weather.
The Standard & Poor’s 500 Index “clawed its way back late in the equities game yesterday (ending the day up 1%) on hopes China would come to the aid of the debt-ridden Euro-Zone. Crude took its cue from the broader market,” said analysts in the Houston office of Raymond James & Associates Inc. Oil and gas prices were higher in early trading Sept. 13, but broader market futures were again in the red, they said.
However, a report that Italy is seeking for China to buy its bonds is basically “the same story about China coming to buy bonds of Ireland, Portugal, Greece being served over the last 12 months,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “It will take more than this to bring confidence back in the Euro-Zone (pronounced ‘Zero-Zone’).”
“The market reality is that the European Central Bank buying bonds of Italy has only provided a few days of relief; the yields on the Italian 2-year and on the 5-year bonds are already back to pre-ECB-intervention levels while a default of Greece is now fully priced in the bonds,” Jakob said. “On Greece, the bond markets are not anymore asking ‘if.’ Risk managers need to run stress-tests on a Greek default.”
US Treasury Secretary Timothy Geithner is scheduled to go to Poland Sept. 16 to attend a meeting of Euro-Zone finance ministers. “This will be a first,” said Jakob, who also recalled Geithner’s earlier claim there was “no chance” the US credit rating would be downgraded.
James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “Oil products missed the intraday rally in crude and ended the day much lower than crude, which saw refining margins continue with their recent decline. The front-end of the North Sea Brent structure continued climbing on the back of a very tight physical market. The spread between Brent and West Texas Intermediate narrowed further as Brent started to show its weakness on the back of poor refining margins.”
Jakob reported, “The main trading action in oil yesterday was very clearly in the Brent-WTI spread, and that trading action is a continuation of a change of pattern” that started Sept. 8. He said, “It is not the first time that there have been a few days of correction in the Brent premium to WTI but . . . at the current level of flat price and of oil demand, the easiest $10-20/bbl for momentum funds with deep pockets would probably be in trading a reversal of the Brent-WTI spread.”
Since WTI’s price increase Sept. 12 was “derivate” of that spread’s contraction, Jakob said, “Products were not following the rebound in crude oil, and that leaves the product cracks-refining margins falling to lower levels.” He noted, “The ICE gas oil front backwardation continues to gently slide lower while the backwardation in RBOB [reformulated blend stock for oxygenate blending in gasoline] is correcting sharply lower.”
The US driving season that ended Sept. 5 with the Labor Day holiday “has given little cause for optimism in US gasoline demand, with demand for many weeks falling below its previous 5-year lows,” Zhang said. “US gasoline demand is set to come off significantly over the coming weeks, if it follows its normal seasonal trend. Consequently, gasoline cracks have fallen sharply since last week, which has pushed refining margins sharply lower.”
He reported, “Another drag on prompt refining margin is a very tight physical crude oil market, which has pushed Brent structure into very steep backwardation and record highs in physical crude differentials, both of which have eroded refining margins significantly. The current margin environment, if it where to persist, would cause many refineries to cut crude throughput and delay crude purchases for long-haul crude cargoes.”
Nevertheless, Zhang said refining margins may yet get some support from low product inventories, continued hurricane risks, and the upcoming refinery maintenance season in the North Hemisphere.
The October contract for benchmark US sweet, light crudes regained 95¢ to $88.19/bbl Sept. 12 on the New York Mercantile Exchange. The November contract recouped 90¢ to $88.31/bbl. On the US spot market, WTI at Cushing, Okla., was up 95¢ to $88.19, still matching the front-month futures price.
Heating oil for October delivery fell 3.83¢ to $2.95/gal on NYMEX, however. RBOB for the same month dropped 3.28¢ to $2.74/gal.
The October contract for natural gas lost 3¢ to $3.89/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 1.8¢ to $3.94/MMbtu.
In London, the October IPE contract for North Sea Brent was down 52¢to $112.25/bbl. Gas oil for September was unchanged at $939.50/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes fell $2.54 to $107.86/bbl.
Contact Sam Fletcher at firstname.lastname@example.org