MARKET WATCH: Natural gas, crude prices continue falling in US market

Natural gas prices continued to drop, down 5% Feb. 1 in the New York futures market on reports of record-high supply levels and milder weather, while crude declined 1% to less than $98/bbl following another unsuccessful run at the $100/bbl barrier.

Both bucked a rally in the equity market where Standard & Poor’s 500 Index was up 1% as investors breathed sighs of relief on reports that an “imminent” agreement between Greece and its creditors is still imminent.

“Oil prices were choppy yesterday, swung by macroeconomic data releases and the weekly US oil inventory report [by the Department of Energy’s Energy Information Administration],” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. Product cracks—particularly for distillates—widened further following sizable inventory builds of US refined products stocks. Term structures in West Texas Intermediate and North Sea Brent crude diverged as WTI’s structure weakened slightly and Brent’s structure rallied.

Analysts in the Houston office of Raymond James & Associates Inc. reported Feb. 2 the price spread between WTI and Brent “has widened to $15/bbl this morning, a level not seen since November,” as crude storage at Cushing, Okla., “ begins to build in the midst of spring refinery maintenance season.”

Olivier Jakob at Petromatrix in Zug, Switzerland said, “Canadian imports into [the DOE’s Petroleum Administration for Defense District] PADD 2 [covering the Midwest] remain very high and stocks of crude oil in Cushing have started to rebuild. There is still a long way to go until the stocks in Cushing reach fill-capacity, but with the delay in the Seaway pipeline reversal and the seasonal drop in refinery runs during the spring, the stocks in Cushing should continue to build,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

US inventories

EIA reported Feb. 2 the withdrawal of 132 bcf of natural gas from US underground storage in the week ended Jan. 27. That was above the Wall Street consensus for a 129 bcf withdrawal, leaving 2.97 tcf of working gas in storage. That’s 586 bcf higher than last year at this time, and 601 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories jumped 4.2 million bbl to 338.9 million bbl in the same week, exceeding Wall Street’s consensus for 2.6 million bbl build. Gasoline stocks rose 3 million bbl to 230.1 million bbl, far above analysts’ expectations of a 500,000 bbl increase. Both finished gasoline and blending components increased. Distillate fuel inventories dipped 100,000 bbl to 145.4 million bbl, less than the 1.4 million bbl decrease the market expected. Total commercial petroleum inventories increased 8.4 million bbl last week vs. Wall Street projections of a 1.7 million bbl gain (OGJ Online, Feb. 1, 2012).

The oil inventories update was bearish “as a higher-than-expected build in gasoline was compounded by a build in crude, partly offset by a small draw in distillates,” said Raymond James analysts. “A jump in imports didn't help, as warm winter temperatures and weak consumption patterns continue to weigh on demand. As a result, gasoline demand fell 1.6% week-over-week and was down 7.3% vs. the same period last year while distillate demand dropped 3.9% week-over-week, down 1.7% vs. the same period last year. At the end of the week, total days of petroleum supply stood at almost 50 days, up 1 day year-over-year and well above the 5-year average of 43 days. At Cushing, inventories rose 1.5 million bbl to 30.1 million bbl, the second weekly build in a row, pressuring WTI pricing relative to Brent.”

Earlier this week, the DOE announced a “huge” revision adding 23 million bbl to its monthly stock report for November. At the time, Jakob warned of the risk that “some larger-than-expected stock builds” might appear in subsequent weekly reports “as the DOE needs to gradually align the current stocks to the November baseline.” The latest report “showed a total stock build of 8.4 million bbl, including [an increase of] 7.8 million bbl in the main crude plus clean petroleum product category. In the first 4 weeks of this year, the US has built 21.7 million bbl in that main…category, or a daily stock build of 780,000 b/d.” He said, “A stock build in January is as seasonal and normal as a stock draw in December, but that still leaves the main total US stocks at a comfortable level.”

DOE’s implied demand for gasoline “is extremely low,” said Jakob. Some of that demand loss may stem from the November revision, “but it cannot be the whole explanation,” Jakob said. The latest MasterCard Spending Pulse report on US retail gasoline sales also indicated gasoline sales at the pump are severely lower than a year ago. “If those implied numbers are anywhere close to reality, then the demand destruction of 2008 was nothing compared to the demand destruction of 2011-12,” said Jackson.

“In 2011, to offset the loss of domestic demand the US refineries have increased exports of gasoline to Latin America, making the US join Singapore as the world’s largest exporter of gasoline; but if the US real gasoline consumption continues on this trend, the US Gulf Coast refineries will need to export even more gasoline and probably force more other refineries to shut down on either side of the Atlantic. The stocks of gasoline remain very comfortable and the days-of-cover in gasoline are at the highest level since 1995,” he said.

Distillates stocks were stable last week, still below the high levels of 2010-11. “But there has been no winter so far in the US, and that is not expected to change for the next 2 weeks,” said Jakob. “US refineries are running too hard for local consumption, but the margins are supporting high utilization rates and that should continue to translate into more stock builds.”

The US Gulf Coast registered 3.3 million bbl stock build last week after the seasonal drawdown in December. “Imports from Saudi Arabia on the 4-week average are at a solid 1.55 million b/d, which is 41% higher than a year ago and the highest level since July 2008,” Jakob reported. “Imports from Nigeria, however, are 56% lower than a year ago. As the US East Coast refineries are shutting down to the benefit of the US Gulf Coast refineries, Saudi Arabia is taking the US market share of Nigeria. Nigeria will continue to have to look for other markets, especially now that Libya is getting closer to pre-war levels. The US administration is rejecting a vote for the extension of the Keystone Pipeline [that would transport crude from Canada’s oil sands to the US Gulf Coast] at the same time that the US is reestablishing its dependency on crude oil from Saudi Arabia,” Jakob said.

Energy prices

The March contract for benchmark US sweet, light crudes fell 87/¢ Feb. 1 to $97.61/bbl on the New York Mercantile Exchange. The April contract dropped 86¢ to $97.99/bbl. On the US spot market, WTI at Cushing was down 87¢ to $97.61/bbl.

The new front-month March heating oil dipped 0.54¢ to $3.05/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.13¢, but its rounded closing price was essentially unchanged at $2.89/gal.

The March natural gas contract dropped 12.1¢ to $2.38/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 16.7¢ to $2.33/MMbtu.

In London, the March IPE contract for North Sea Brent increased 58¢ to $111.56/bbl. Gas oil for February gained $6 to $955.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 59¢ to $110.62/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

 

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