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MARKET WATCH: Crude oil prices climb despite bigger inventory

Crude oil prices continued climbing Feb. 23 with the front-month contract temporarily topping $108/bbl in intraday trading in the New York futures market, despite a US government report of larger than expected oil inventories.

However, bigger than expected natural gas stocks cut its front-month price nearly 1% in that same market, said analysts in the Houston office of Raymond James & Associates Inc. Crude prices were higher and gas prices were lower in early trading Feb. 24.

“The oil market continued with its strong rally, driven by bullish economic data and fears over supply shortages,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Oil products were also firmer on the back of falling product inventories in the US. Overall the market remains in a bullish mood, even amid some signs that weakness is starting to emerge on the demand side.”

However, he said, “It’s important to note that on the back of high oil prices, total US oil product demand, measured on a 4-week average basis, fell 6.7% year-on-year last week to 18.05 million b/d, the lowest level since April of 1997.”

The Energy Information Administration said commercial US crude inventories increased 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 600,000 bbl to 231.5 million bbl in the same period, against analysts’ expectations of a 300,000 bbl gain. 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 (OGJ Online, Feb. 23, 2012).

EIA also reported the withdrawal of 166 bcf of natural gas from US underground storage in the same week. 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.

“Given that [oil] US stocks last year were already at a multi-year high for this [comparable] week, this means…total US stocks are at the highest level since 1999,” said  Olivier Jakob at Petromatrix in Zug, Switzerland. “Total US Stocks are 82 million bbl than in the same 2008 week; US implied demand is down 2.6 million b/d from the same 2008 week; but the increased stock–to-use ratio does not buy you much price security.”

On the US Gulf Coast, stocks of crude were flat as the Houston Ship channel continued to suffer from delays due to fog. There was a marginal draw from crude stocks in Cushing, Okla. Refineries in the Midwest continue to operate at a high level of utilization, but crude imports into that area rising as well, Jakob reported.

“The flat price of crude oil meanwhile continues to move higher on the anticipation of the embargo on Iran spinning out of control, and this while the US president is finding no other solutions to the high prices than investing in solar panels and other windmill projects,” Jakob said. “Some street protests over high fuel prices have started to erupt in a few emerging countries. They are too small for now to make a big buzz about it, but is something to monitor as those always start on a sporadic basis before becoming a larger problem. Asia has been snapping up crude oil cargoes that Europe thought they could get to replace the Iranian barrels, but the refining margins in Asia are starting to head south. The front structure in gas oil weakening both in Asia and in Europe,” he said.

The latest UK data shows oil demand in December was down 7.8% from the same period last year. In the same month, UK demand for heating fuel was 45.2% below the year-ago level. “That is a close match to the 52.7% year-on-year drop of heating oil demand that has been indicated for France during December,” Jakob said. “The cold wave did bring some additional demand in February, but the season before that had a major slowdown in demand for heating fuels.”

Energy prices

The April contract for benchmark US light, sweet crudes climbed $1.55 to close at $107.83/bbl Feb. 23 on the New York Mercantile Exchange. The May contract advanced $1.47 to $108.25/bbl. On the US spot market, West Texas Intermediate at Cushing was up $1.55 to $107.83/bbl.

Heating oil for March delivery increased 2.25¢ to $3.29/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 2.59¢ to $3.11/gal.

The March natural gas contract dropped 2.2¢ to $2.62/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued to climb, up 5.9¢ to $2.67/MMbtu.

In London, the April IPE contract for North Sea Brent was up 72¢ to $123.62/bbl. Gas oil for March gained $7.75 to $1,031.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 82¢ to $121.70/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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