MARKET WATCH: Oil makes small gains; gas price continues decline

There were small-change gains in oil commodities Dec. 29, but front-month crude failed to rise above the $100/bbl barrier in the New York market. Natural gas prices continued to decline.

“Crude ended the day flat, as petroleum inventories surprised to the upside,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas was a much more interesting story, as prices fell 3% to close just 3¢ above the $3 threshold, as a bearish natural gas storage report teamed up with an Energy Information Agency report that placed natural gas production from the Lower 48 at a record high of 71.3 bcfd, up 8.3% year over year.”

The SIG Oil Exploration & Production Index and the Oil Service Index were up 1% and 2%, respectively, despite lack of support from commodity prices. Raymond James analysts reported “a surprisingly strong pre-holiday session” in the equities market as the Standard & Poor’s 500 Index “scraped its way back into positive territory for the year, gaining 1% on positive signs from the US housing and labor markets.” However, commodity and equity prices were down in early trading Dec. 30.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Oil prices have benefited from the renewed optimism over the US economy, although momentum seems to be fading here too. Crude oil looks set to be the top pick of 2011, with Brent and West Texas Intermediate recording gains of 16.2% and 11.2% year-over-year.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said crude “continues to trade the global correlations and is receiving some support from concerns about disruptions in the Strait of Hormuz, while relative values are starting to price the concerns about disruptions in the Petroplus [Holdings AG] refining system (OGJ Online, Dec. 29, 2011).”

As a result, he said, “The differentials for Russian crude oil have been plunging for the last 2 days. Dow Jones reports that Libya is about to restart crude oil exports out of Es-Sider [oil port]; if confirmed that would be an additional pressure point for European crude oil differentials. While the Iranian war games are still attracting a lot of media attention, the US aircraft carrier USS Stennis sailed without any problems through the Strait of Hormuz on its way to the Arabian Sea for air support of operations in Afghanistan.”

Imports, exports, and refiners

Jakob said, “The collapse of the Petroplus refining system in Europe would be good news for US Gulf Coast refiners because there is not enough demand in the US for their level of refinery utilization; hence Gulf Coast refineries will need to maintain a high level of product exports. In October, the distillates exports out of the US reached a new all-time record high and were above 1 million b/d while gasoline exports were stable at about 500,000 b/d.”

He said the US would be “running with close to zero crude oil imports” from the Organization of Petroleum Exporting Countries “if the US had not transformed itself since 2008 into a major exporter of distillates.” Jakob said, “The amount of crude oil required to produce the amount of US distillates exports now represents 45% of the US crude oil imports or 89% of US crude oil imports from OPEC.”

He reported, “Total US net exports of petroleum products reached a new record in October. The US was a net exporter of 1.1 million b/d while in October 2007 it was a net product importer of 1.8 million b/d.”

US inventories

The EIA reported commercial US crude inventories increased 3.9 million bbl to 327.5 million bbl in the week ended Dec. 23, opposite the Wall Street consensus for a 2.5 million bbl draw. Gasoline stocks decreased 700,000 bbl to 217.7 million bbl in the same period, exceeding Wall Street’s expectation of a 500,000 bbl draw. Distillate fuel inventories were up 1.2 million bbl to 140.4 million bbl, counter to market anticipation of a 700,000 bbl decrease (OGJ Online, Dec. 29, 2011).

EIA also reported the withdrawal of 81 bcf of natural gas from US underground storage in the same week, leaving 3.5 tcf of working gas in storage. Gas stocks were up by 297 bcf more from the comparable week last year and 428 bcf above the 5-year average.

The 4-week average reported by EIA “implied US demand [for oil] is extremely low, 1.6 million b/d lower than a year ago and 2.5 million b/d lower than in 2007,” Jakob said. “Implied demand for clean petroleum products is down 2.9% vs. last year, but implied demand for “other oils”, a mix of feedstocks mostly for industrial production, has fallen off the cliff and is down 940,000 b/d vs. last year.”

EIA’s recent revision of October data “shows total US demand lower by 261,000 b/d from the weekly estimates, with most of the downward revisions to demand being in distillates (down 298,000 b/d) while gasoline demand was only revised marginally lower (down 24,000 b/d),” Jakob said. Total US demand was at the lowest level reported for the month of October since 1995.

Energy prices

The February contract for benchmark US light, sweet crudes increased 29¢ to $99.65/bbl Dec. 29 on the New York Mercantile Exchange. The March contract gained 31¢ to $99.82/bbl. On the US spot market, WTI at Cushing, Okla., was up 29¢ to $99.65/bbl.

Heating oil for January delivery rose 2.41¢ to $2.92/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.88¢ to $2.68/gal.

The new front-month February natural gas contract dropped 9.4¢ to $3.03/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also was down 9.4¢, to $2.98/MMbtu.

In London, the February IPE contract for North Sea Brent increased 45¢ to $108.01/bbl. Gas oil for January gained $3.25 to $921.50/tonne.

The average price for OPEC’s basket of 12 benchmark crudes dropped 77¢ to $106.75/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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