MARKET WATCH: Better US economic data raise oil prices

Crude oil prices rebounded Nov. 15 with the front-month crude contract up more than 1% to close above $99/bbl on the New York market on better-than-expected US economic data.

“Meanwhile, natural gas posted its fifth straight losing session, falling 1.6% on continued supply concerns and forecasts for mild weather,” said analysts in the Houston office of Raymond James & Associates Inc.

“Gasoline prices arrested their recent slide on a sizable inventory draw reported by the American Petroleum Institute last night, while middle-distillates gave back some recent gains. The expiry of the December Brent contract has had little impact on Brent structure, which remains in rather steep backwardation. Meanwhile, the West Texas Intermediate structure firmed up again despite an inventory build at Cushing, Okla., reported by the API,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

He said, “The recent price action in the oil market indicates that investors are very cautious because of the Euro-zone debt crisis. Also, risk-on moves are less likely into yearend. Lately after massive inventory draws or bullish economic news, the oil price grinds higher rather than rallies. That said, oil market fundamentals and the US economy are reasons for optimism. Nevertheless, we still expect volatility to remain elevated, as the oil price is torn between tight fundamentals and uncertainties over the macroenvironment.”

Still, Zhang reported, “Yields for peripheral Euro-zone government bonds have moved higher again, thereby dampening sentiment. However, US retail sales and the Empire Manufacturing survey both beat market expectations. In addition, US Producer Price Index (PPI) softened, which gives room for further monetary easing by the Federal Reserve Bank. Euro-zone inflation has remained at 3% year-over-year, which should not be a barrier to further rate cuts from the European Central Bank. Indeed, we expect a rate cut in December.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said the Euro-zone financial crisis has expanded beyond the four little PIGS—Portugal, Italy, Greece, and Spain—and it’s now “time to run for cover.” He said, “It is not anymore an issue of the ‘peripheries,’ and yesterday the spreads to the German bunds [government bonds] increased around the European board. The French 10-year bond spread to Germany is at 1.89 which was the Spanish-German spread back in March of this year. The fact that the French are trying to make it illegal for rating agencies to downgrade their assessment should also be ringing alarm bells quite loudly.”

Jakob said, “On its spread to the German bunds, France is already not anymore a triple-A nation, and this will be a major problem for the issuance of European Financial Stability Facility bonds; it is no wonder that the EFSF is having strong difficulties in issuing bonds.”

He warned that the Greek financial crisis was by comparison “a nice amusement, [but] if something is not done very rapidly by the world powers to reverse the trend on the French-German bond spreads, then in our opinion we are stepping into much greater problems.” Meanwhile, the valuation of the euro against the US dollar “is naturally under pressure and is back down to testing the support level of 1.35. This will be problematic for the US Federal Reserve and its dollar debasement theme,” said Jakob.

He said, “The US is not yet out of the woods but the crisis at this hour is in Europe not in the US, and if we need to have some cash sitting somewhere over the holiday period we’d rather have it in dollars than in euros.”

US inventories

The US Energy Information Administration said Nov. 16 commercial inventories of US crude dropped 1.1 million bbl to 337 million bbl in the week ended Nov. 11. Gasoline increased by 1 million bbl to 205.2 million bbl in the same period. Both finished gasoline and blending components increased last week. Distillate fuel inventories decreased by 2.1 million bbl to 133.7 million bbl, EIA said.

EIA said imports of crude into the US declined 53,000 b/d to 8.6 million b/d last week. In the 4 weeks through Nov. 11, crude imports averaged 8.9 million b/d, up 379,000 b/d from the comparable period last year. Gasoline imports averaged 762,000 b/d, while distillate fuel imports averaged 82,000 b/d.

The input of crude into US refineries increased 344,000 b/d to 14.7 million b/d last week with units operating at 84.8% of capacity, said EIA. Gasoline production increased to 9.1 million b/d and distillate fuel production increased to 4.8 million b/d.

Energy prices

The December contract for benchmark US light, sweet crudes gained $1.23 to $99.37/bbl Nov. 15 on the New York Mercantile Exchange. The January contract rose $1.21 to $99.43/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.23 to $99.37/bbl in step with the front-month crude futures price.

Heating oil for December delivery advanced 0.91¢ to $3.17/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 5.04¢ to $2.59/gal.

The December natural gas contract continued dropping, down 5.4¢ to $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 6.7¢ to $3.09/MMbtu.

In London, the December IPE contract for North Sea Brent was up 50¢ to $112.39/bbl. Gas oil for December dropped $5.50 to $993.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dipped 50¢ to $112.19/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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