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MARKET WATCH: False tale of Iran cutting exports lifts oil prices

Crude oil climbed above $102/bbl in intraday trading Feb. 15 in the New York market on a report Iran was cutting oil exports to Europe but closed in the green at a slightly lower level after Iranian officials denied that report. Natural gas dropped 4%.

“Iran played the headlines yesterday, having its ‘western’ news outlet PressTV claim that Iran was imposing an export ban on the Netherlands, Portugal, Spain, Italy, France, and Greece, only to deny that claim through the oil ministry a little later. We have to take it as Iran giving a signal that if certain countries…hope that they can ask for a waiver to adjust over a longer period of time, it is something that will not fly,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

“The ‘false’ Iranian headline managed to have Brent break the resistance of $118.60/bbl, but it failed to break the resistance of $120/bbl,” Jakob said. As a result, he said, “The 5-day moving average is starting to flatten while Brent remains in the overbought territory [on the 14-day Relative Strength Index]. The momentum in Brent is slowing down, and at current levels that leaves Brent with little option but to break $120/bbl to prevent closing down some of the long momentum positions. One of the main issues for Brent will remain the euro-dollar [valuation], and in terms of headlines, Greece is currently as confusing as Iran.”

Iran also indicated it is ready for more discussion with the five permanent members of the UN Security Council—France, Russia, the UK, US, and People's Republic of China—plus Germany over its nuclear program. Jakob said, “We can guess that Iran would rather go into those discussions with Brent at $130/bbl than with Brent at $80/bbl. We will have to be on watch for deteriorating refining margins in the Mediterranean.”

Brent has regained some of its premium to West Texas Intermediate. “But on a technical basis the positive momentum is currently stronger in WTI than in Brent,” said Jakob.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The sharp rally in the Brent structure and a headline-driven, jittery market in recent days has given the bulls the upper hand. However, the risk of a substantial reversal in the Brent price is increasing by the day. The open interest in the Brent futures market appears to have ceased to grow, signaling the buying power might have been exhausted. Technically, more signals for a price reversal are appearing. Volatility appears to be stabilizing at a low level, which also carries a significant risk of small spikes. Product cracks and refining margins will continue to be eroded as high prices erode demand for oil products. Now is the ideal time for producer hedging, as the strong rally in flat prices and low volatility present an opportunity for inexpensive downside protection.”

Uncertainty over Greece’s economic recovery and other issues escalated in early trading Feb. 16. The Associated Press reported, “Stocks took a hit, the euro dropped below $1.30, and the borrowing rates rose for Italy and Spain, an indication of renewed investor concerns that they will eventually be dragged back into the crisis that had shown some signs of easing over the past few weeks.”

Meanwhile, the Department of Energy increased its recent estimate of US exports of petroleum products to 3.06 million b/d from 2.88 million b/d. “This is 900,000 b/d higher than a year ago,” Jakob noted. “In the big picture, US implied demand of petroleum products is 900,000 b/d lower than a year ago, and US export of petroleum products is 900,000 b/d higher than a year ago. The US is by far now the largest exporter of petroleum product in the world, but don’t tell that to the taxi driver in New York who will very soon have to pay $4/gal for regular unleaded.”

US inventories

The Energy Information Administration reported the withdrawal of 127 bcf of natural gas from US underground storage in the week ended Feb. 10. That reduced working gas in storage to 2.76 tcf, up 817 bcf from the comparable period a year ago and 765 bcf above the 5-year average.

EIA earlier said commercial inventories of US benchmark crude dipped 200,000 bbl to 339.1 million bbl in the same week, compared with Wall Street’s consensus for an increase of 1.1 million bbl. Gasoline stocks increased 400,000 bbl to 232.2 million bbl in the same period, short of the 700,000 bbl build analysts had expected. Distillate fuel inventories dropped 2.9 million bbl to 143.7 million bbl, more than the expected 1.1 million bbl decline. Total commercial petroleum inventories were down 4 million bbl last week (OGJ Online, Feb. 15, 2012). Immediate market reaction to the EIA report was muted.

“Crude inventories at Cushing, Okla., rose by 2 million bbl, which will keep the WTI structure under pressure,” said Zhang. “However, a recent shutdown of a synthetic-crude facility in Canada could slow down the inventory build in Cushing in the coming weeks. US crude imports rose by 300,000 b/d and refinery crude intakes rose by 200,000 b/d, which net off any significant changes in crude inventories. Gasoline demand in the US remained very soft, at a level slightly above 8 million b/d, while distillate demand remained solid, which was most probably driven by higher exports.”

Jakob said, “Refineries in the Midwest continue to run at a high level, but the discounts for gasoline and diesel in Chicago vs. the futures are widening; the Chicago gasoline discount is falling to a record low and offsetting the gains shown on the futures cracks vs. WTI. The Midwest refinery margins vs. Canadian heavy crude are still very strong but are seriously weakening vs. WTI.”

Latest data show oil consumption in Italy was down 5.9% in January from the same period in 2011. Gasoline demand inched up 0.3% in January after dropping 6.2% in the fourth quarter. But Italian demand was down last month by 3.4% for diesel, 2.5% for jet fuel, and 5.1% for heating oil. “In France, the latest estimate for January liftings out of storage terminals and refineries has gasoline sales down 4.7% vs. last year, diesel up 2.8%, and heating oil down 36.5%,” Jakob reported.

He said, “Things are not really better in the US compared with Italy. The [EIA] implied demand on the 4-week average is down 4.6% vs. last year, including a 6.4% drop in gasoline demand and distillate down 2.6%. US refinery runs have held, partly helped by strong exports to Europe, but the European oil demand will remain at risk to record high prices in euros while the economy is still hurting and unemployment not moving in the right direction. In euros per barrel, Brent has been higher only 1 day in its history: July 3, 2008. The European consumer is currently getting the double hit of Iran trying to do its most to support Brent prices and Greece continuing to pressure the euro-dollar [valuation].”

Energy prices

The March contract for benchmark US sweet, light crudes climbed to $102.54/bbl in intraday trading Feb. 15 before closing at $101.80/bbl, up $1.06 for the day on the New York Mercantile Exchange. The April NYMEX crude contract and WTI at Cushing on the US spot market also were up $1.06 each to $102.14/bbl and $101.80/bbl, respectively.

Heating oil for March delivery increased 2.68¢ to $3.19/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.42¢ to $3.01/gal.

The March natural gas contract fell 10.7¢ to $2.43/MMbtu, however, wiping out a little more than it had gained in the previous NYMEX session. On the US spot market, gas at Henry Hub, La., continued its climb, up 2¢ to $2.54/MMbtu.

In London, the new front-month April IPE contract for North Sea Brent gained $1.58 to $118.93/bbl. Gas oil for March escalated $13.50 to $1,005.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose $1.32 to $117.95/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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