MARKET WATCH: Energy prices remain mixed in confused world markets

The price of benchmark US crudes accelerated its rise, boosted above $90/bbl Sept. 13 in the New York market by production cuts in Canadian syncrude, while in Europe North Sea Brent continued its price decline with rapidly deteriorating refining margins.

“Crude advanced 2% as traders anticipated a stockpile drawdown following Hurricane Irene and Tropical Storm Lee. Natural gas was flat on a moderating weather outlook that could reduce power plant utilization,” said analysts in the Houston office of Raymond James & Associates Inc. In early trading Sept. 14, the market appeared ready “to compound its 2-day streak in anticipation of more positive signals from Europe. Crude futures are slightly down and natural gas is flat,” they said.

In Zug, Switzerland, however, Olivier Jakob at Petromatrix said, “The European situation remains extremely confusing.” A report at the start of this week that China might buy government bonds from financially troubled Italy was later “clarified that China was looking potentially at buying Italian assets,” he said.

Reports circulated late in the Sept. 13 trading session “that Brazil, Russia, India, China and South Africa (BRICS)” were considering the possibility of buying European bonds. “Brazil and South Africa seen as the savior of Europe? If those headlines are the only thing being seen as a solution to support the market, then we have to be really worried,” said Jakob. Meanwhile, he noted, “The US asset recovery drive has been led by a policy of dollar debasing, and that becomes at risk if the euro falls down.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “Gasoline and naphtha cracks improved somewhat yesterday, while middle-distillate cracks weakened slightly. The movement in product cracks led to a slight improvement for overall refining margins, but the margins remained overall poor. The term structure for Brent at the very front-end of the curve continues to climb while the time spread from November onwards weakened substantially.” He expects the North Sea Brent structure to weaken as crude supply improves and refining margins weaken.

Jakob said, “Refining margins were strong in August, but the crude oil buying that they induced has since then propelled crude oil premiums to multiyear highs, and it did also translate during August in Brent reaching a new record high premium to West Texas Intermediate. However, the products have stopped providing a leadership to the oil complex and as a result the refining margins in the Atlantic Basin have plunged to negative levels and are at lows for the year.”

Refining margins in the Atlantic Basin “are negative for the Brent premium to WTI, hence on a fundamental basis we continue to see the Brent premium to WTI as overbought.” Jakob said, “If the Brent futures premium to WTI does not continue to correct lower and if products are not able to regain some price leadership, then a next logical step would be to see pressure developing on the crude oil physical premiums; that would then put some pressure on the Brent times-spread structure and given that the time-spread structure in WTI has flattened, it would then again cap the Brent premium to WTI on a roll-at-risk basis.”

US inventories

The Energy Information Administration said Sept. 14 US commercial crude oil inventories fell 6.7 million bbl to 346.4 million bbl in the week ended Sept. 9, well below the 3 million bbl drop anticipated in the Wall Street consensus. On the other hand, gasoline stocks climbed by 1.9 million bbl to 210.8 million bbl last week—above average for the time of year—compared with analysts’ expectations of a 500,000 bbl decline. Finished gasoline inventories increased while blending components remained unchanged. Distillate fuel inventories increased by 1.7 million bbl to 158.5 million bbl in the same period, more than double the market’s outlook for a 700,000 bbl increase.

Imports of crude into the US declined 23,000 bbl to 8.5 million bbl last week, EIA reported. In the 4 weeks through Sept. 9, US crude imports averaged 8.9 million b/d, down 494,000 b/d from the comparable period a year ago. Gasoline imports averaged 659,000 b/d last week while distillate fuel imports averaged 154,000 b/d.

The input of crude into US refineries fell 426,000 b/d to 15 million b/d last week with units operating at 87% capacity. EIA said gasoline production increased to 9.4 million b/d while distillate fuel production decreased to 4.5 million b/d.

Energy prices

The October contract for benchmark US light, sweet crudes jumped by $2.02 to $90.21/bbl Sept. 13 on the New York Mercantile Exchange. The November contract escalated $1.97 to $90.28/bbl. On the US spot market, WTI at Cushing, Okla., continued to match the front-month futures price, up $2.02 to $90.21/bbl.

Heating oil for October delivery declined 1.14¢ to $2.94/gal, however, on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.42¢ but remained virtually unchanged at a rounded $2.74/gal.

The October contract for natural gas gained 9.5¢ to $3.98/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1.5¢ to $3.96/MMbtu.

In London, the October IPE contract for North Sea Brent slipped 36¢ to $111.89/bbl. The new front-month October contract for gas oil dropped $8.50 to $924.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose 56¢ to $108.42/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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