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MARKET WATCH: Crude oil prices increase in directionless market

Crude oil prices increased moderately Jan. 10 as the equities market continued to rally on speculation that China may act to spur its economic growth. However, the price of natural gas slumped 2.3% in the New York futures market.

“Despite weakening talks of an European Union [embargo of] Iranian oil, crude managed to close the day up 1%,” said analysts in the Houston office of Raymond James & Associates Inc.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Oil products moved at a similar pace as crude, although the American Petroleum Institute report on US inventories put some pressure on products. As we had expected, the Brent structure rallied strongly on supply glitches in Sudan and the risk of production disruptions in Nigeria.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The flat price of crude oil has not been able to trade out of a small range for the last 5 trading days, and it seems that the Iranian risk on one side and demand destruction risk on the other is for now pushing market participants to the sideline.”

However, he also noted “an unscheduled, unannounced meeting at the White House” Jan. 10 between President Barack Obama and Saudi Arabia’s foreign minister. “The story is far from over, and early February is likely to be full of headlines since we will have the Iranian response to the likely EU announcement of an embargo on Jan. 23, followed by the likely move of a US aircraft carrier through the Strait of Hormuz (likely the USS Vinson, while the USS Lincoln will likely be positioned in the Arabian Sea), and this about at the same time that Iran conducts additional naval exercises in the Persian Gulf or the Strait of Hormuz.”

On the fundamentals, however, Jakob said, “There is no great change of trend in US oil demand.”

In other news, a nationwide strike in Nigeria over the reduction of a government subsidy for retail fuel ran into its third day. “The two unions for the oil and gas sector workers are warning that their members might also have to withdraw from work, which would resulting in severe supply disruptions to the oil production in the country,” Zhang said. A member of the Organization of Petroleum Exporting Countries, Nigeria produces some 2.2 million b/d of primarily high-quality low-sulfur crude.

Meanwhile, Zhang said, “Today, the euro is setting a new record low (since September 2010) following weak economic data out of Germany and Spain. The European Central Bank will meet tomorrow for its policy announcement; it might cut the euro’s benchmark rate further. A weaker euro would pressurize the oil price despite the tight market and the risk of supply disruptions. That said, the strength in the term structure in Brent clearly reflects market fundamentals. Better demand from refineries on firm refining margins also supports the market—for now.”

US inventories

US oil inventories continued to surprise Wall Street as the Energy Information Administration reported Jan. 11 commercial US crude inventories jumped 5 million bbl to 334.6 million bbl in the week ended Jan. 6, again surpassing the consensus for an increase of 1 million bbl. Crude inventories are above average for this time of year. Gasoline stocks climbed 3.6 million bbl to 223.8 million bbl compared with analysts’ expectations for a 2.3 million bbl gain. Both finished gasoline and blending components inventories increased last week. Distillate fuel inventories escalated by 4 million bbl to 147.6 million bbl. A 2.3 million bbl gain also was forecast for that category.

Earlier, API reported crude stocks up 397,000 bbl to 334.9 million bbl. It said gasoline inventories increased 1.9 million bbl to 221 million bbl, with a 846,000 bbl rise in distillate stocks to 146.2 million bbl.

Imports of crude into the US were up 883,000 b/d to 9.9 million b/d last week, EIA reported. In the 4 weeks through Jan. 6, crude imports averaged 8.9 million b/d, an increase of 152,000 b/d above the comparable period in 2011. Gasoline imports last week averaged 444,000 b/d, while distillate fuel imports averaged 163,000 b/d.

The input of crude into US refineries increased 181,000 b/d to 14.9 million b/d last week with units operating at 85.6% of capacity. However, output continued to decline with gasoline production down to 8.7 million b/d, and distillate fuel production decreasing to 4.8 million b/d, EIA said.

Energy prices

The February contract for benchmark US light, sweet crudes gained 93¢ to $102.24/bbl Jan. 10 on the New York Mercantile Exchange. The March contract increased 92¢ to $102.44/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 93¢ to $102.24/bbl.

Heating oil for February delivery increased 2.84¢ to $3.10/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 1.38¢ to $2.77/gal.

The February natural gas contract dropped 7¢ to $2.94/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 5.8¢ to $2.96/MMbtu.

In London, the February IPE contract for North Sea Brent increased 83¢ to $113.28/bbl. Gas oil for January rose $15 to $974/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was up 47¢ to $112.98/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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