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MARKET WATCH: Crude, gas prices make small gains in worried markets

Crude oil prices inched higher and natural gas made a small recovery Feb. 22 in the New York market amid continued international tension over Iran.

“Front-month ICE gas oil hit the highest level since early May,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Oil products were firmer on the back of a smaller-than-expected product inventory build in the US, according to the American Petroleum Institute report last night. The time spread in Brent rallied strongly, led by a jump in the flat price. Nevertheless, refining margins continue to be eroded by the heated crude prices, which will inevitably induce weaker demand for physical crude.”

Olivier Jakob at Petromatrix in Zug, Switzerland, noted, “We are moving out of winter, and with temperatures in Europe for the next 2 weeks expected to be above normal there is no reason to expect a rush of consumer buying. The shoulder season is always a delicate moment, and there has never been a shoulder season with prices as high as today.”

The latest MasterCard Spending Pulse report of US retail gasoline sales at the pump showed continued sharp deterioration in US demand, down 6.4%, or 566,000 b/d, from last year a year ago with the 4-week average down 5.7%, 495,000 b/d, from the comparable period in 2011. However, Jakob said, “This does not tick with the latest US Vehicles Miles of Travel showing an increase of 1.3% in December. To cut the debate about what is the ‘real’ US gasoline demand, we will have to wait for the Department of Energy’s monthly update for December, which will be released at the end of the month. In the meantime, API is showing a stock build across crude and main products in the US, with the build mostly in crude oil and mostly in the US Gulf Coast.

Meanwhile, Democratic leaders tried to have it both ways with President Barack Obama claiming climbing oil prices indicate a recovering economy and increased global demand while House Minority Leader Nancy Pelosi (D-Calif.) blamed speculators and Wall Street profiteering—not supply and demand—for driving up the cost of crude.

“The price of oil is starting to move closer to center stage in the northern Atlantic Basin, and the political deluge started yesterday, with the usual call for a release of Strategic Petroleum Reserve barrels and blaming it all on ‘speculators,’” Jakob said. “If indeed speculators are buying oil, it is because the European Union is launching an embargo on Iran, the US is squeezing Iran out of the financial system, and there is not a day spent without a headline about a possible military strike on Iran. The oil price is only starting to move into the political debates, but that will increase further as the futures curve is already resulting in $4/gal gasoline on the East Coast for the spring. In the Euro-zone, the weighted average prices of gasoline and diesel at the pump are printing new record highs.”

Political agitation in the West over oil prices may encourage Iran to “make again a bit more noise” in the Strait of Hormuz, he said. “Iran will be seeing the current political agitation over the price of gasoline as a sign of weakness that it should try to exploit. Also, we need to keep in mind that Iran will hold its parliamentary elections Mar. 2, and that could [be] a source of internal agitation,” Jakob said.

US inventories

The Energy Information Administration said commercial US crude inventories increased by 1.6 million bbl to 340.7 million bbl in the week ended Feb. 17, a little more than Wall Street’s consensus for a 1.4 million bbl addition. Gasoline stocks decreased by 600,000 bbl to 231.5 million bbl in the same period, against analysts’ expectations of a 300,000 bbl gain. Finished gasoline stocks decreased while blending components increased. Distillate fuel inventories were down 200,000 bbl to 143.5 million bbl, far less than the 1.5 million bbl drop the market expected.

Imports of crude into the US increased 335,000 b/d to 9.1 million b/d last week. In the 4 weeks through Feb. 17, crude imports averaged 8.8 million b/d, a 211,000 b/d increase from the comparable period in 2011. Gasoline imports last week averaged 845,000 b/d while distillate fuel imports averaged 122,000 b/d.

The input of crude into US refineries increased by 170,000 b/d to 14.9 million b/d last week with units operating at 85.5% of capacity. Gasoline production increased to 9 million b/d, but distillate fuel production decreased to 4.3 million b/d.

EIA also reported the withdrawal of 166 bcf of natural gas from US underground storage in the week ended Feb. 17. That left a little less than 2.6 tcf of working gas in storage, with stocks 753 bcf above the same period a year ago and 744 bcf higher than the 5-year average.

Energy prices

The new front-month April contract for benchmark US sweet, light crudes advanced 3¢ to $106.28/bbl Feb. 22 on the New York Mercantile Exchange. The May contract also gained 3¢, to $106.70/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 44¢ to $106.28/bbl.

Heating oil for March delivery rose 3.31¢ to $3.27/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 1.75¢ to $3.09/gal.

The March natural gas contract regained 1.7¢ to $2.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., recouped 1.4¢ to $2.61/MMbtu.

In London, the April IPE contract for North Sea Brent was up $1.24 $122.90/bbl.

as oil for March climbed $10 to $1,023.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.68 to $120.88/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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