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MARKET WATCH: Oil prices continue rally as gas retreats

Crude prices continued advancing in a mixed market Feb. 8 while the front-month natural gas contract retreated 1% in New York.

“The oil market continued with its strong rally, with front-month Brent having gained an impressive 6% month-to-date already. West Texas Intermediate appeared to try to catch up with Brent during the last two sessions, but technically remains stuck in a downward channel,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

“The gasoline crack recovered slightly from the previous day’s sell-off as the Department of Energy reported a much smaller inventory build than that from the American Petroleum Institute,” Zhang said. “In contrast, distillate cracks gave back some of their gains also due to the Energy Department inventory report. The Brent structure was firmer again, signaling a tightening physical market.”

However, he added, “Technically, Brent is over-stretched, and the current level is starting to have a significant negative effect on global economic growth. Therefore, caution will be required when the current apparent wave of investment influx ends, probably as early as the beginning of next week.”

In Houston, analysts at Raymond James & Associates Inc. said, “Uncertainty regarding a potential bailout and resolution of the Greek debt crisis kept the market flat yesterday.”

However, the Associated Press reported Feb. 9 a Greek coalition of Socialist and conservative politicians struck an agreement on alternative spending cuts to those rejected earlier.

US inventories

The Energy Information Administration reported the withdrawal of 78 bcf of gas from US underground storage in the week ended Feb. 3, below Wall Street’s consensus for an 86 bcf pull. That left 2.9 tcf of working gas in storage, an increase of 714 bcf above both the comparable period a year ago and the 5-year average.

EIA earlier said commercial US inventories of crude were up just 300,000 bbl to 339.2 million bbl last week, far below Wall Street’s consensus for a 2.5 million bbl increase. US gasoline stocks rose 1.6 million bbl to 231.8 million bbl. Analysts expected a 2.5 million bbl gain in gasoline, too. Distillate fuel inventories gained 1.2 million bbl to 146.6 million bbl, exceeding an expected increase of 900,000 bbl. Total commercial petroleum inventories had a net gain of 4.2 million bbl last week, according to EIA” (OGJ Online, Feb. 8, 2012).

API reported US crude stocks fell 4.5 million bbl to 334.9 million bbl in the same period. Gasoline inventories increased 4.4 million bbl to 228.9 million bbl, said API, while distillate stocks gained 386,000 bbl to 144.2 million bbl.

The EIA report was “overall a fairly neutral set of data as far as the market is concerned,” said Zhang. “Implied demand for both gasoline and distillates was broadly flat on a 4-week running average basis.”

That report “is not changing much [from] the trend shown in previous weeks, i.e. US implied demand is totally destroyed,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Demand for clean petroleum products is down 5.1% vs. last year on the 4-week average, and that includes gasoline down 6.75%. Gasoline stocks continue to build, and with the low implied demand they translate into a very high days-of-cover ratio. Stocks of distillates remain lean compared to the last 2 years but are stable rather than drawing due to the lack of US winter. Despite the comfortable stocks in gasoline and the low implied . . . demand, there was a strong change in the reformulated stock for oxygenate blending (RBOB)-heating oil spread yesterday, with the RBOB crack to Brent rising as much as the heating oil crack to Brent was correcting lower. RBOB was compensating yesterday for the loss in the refining margins of the gas oil crack.”

The IEA report included a 2.2 million bbl draw from US Gulf Coast crude inventories. “That cannot be a full surprise given the delays due to fog last week, but nonetheless the US Gulf Coast crude oil stock build has not been particularly large so far this year (up 6.4 million bbl).  Stocks in Cushing, Okla., continue to build but at a slow rhythm, which if continued will not bring Cushing to fill levels of previous years before a long time. Refinery runs [in the Midwest] were slightly lower, but imports from Canada were sharply lower, to the lowest level in 13 weeks,” said Jakob.

A continued “gentle build” in US oil stocks with implied demand “still a major concern” means “US refineries need to continue to export products at a very high rate or face pressure on the margins from stocks growing at a faster rate,” Jakob said.

Analysis of 62% of the declarations show January liftings out of French refineries and tank farms were down 5.1% in gasoline from a year ago, with diesel up 0.8% and heating oil down 35.8%, Jakob reported. “If we make an adjustment for the possible under-estimation in heating oil due to the shift of categories for off-road diesel, we still account a 24.8% [decline] for heating oil for January vs. last year,” he said. “Heating oil sales in France would also have been in January down 16% vs. October. Some catch-up of demand is certainly taken place right now, but winter has been delayed for so long that the distillate premiums have not really responded to the cold wave.”

He said, “Diesel represents 81% of the driving fuel demand in France, and the growing imbalance is going to make a continued tough environment for the refining sector in that country.”

Energy prices

The March contract for benchmark US sweet, light crudes increased 30¢ to $98.71/bbl Feb. 8 on the New York Mercantile Exchange. The April contract advanced 28¢ to $99.10/bbl. On the US spot market, WTI at Cushing remained in step, up 30¢ to $98.71/bbl.

Heating oil for March delivery slipped 0.14¢ to close essentially unchanged at a rounded $3.19/gal on NYMEX. RBOB for the same month rose 4.77¢ to $2.98/gal.

The March natural gas contract lost 2.4¢ to $2.45/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 10.7¢ to $2.48/MMbtu.

In London, the March IPE contract for North Sea Brent gained 97¢ to $117.20/bbl. Gas oil for February delivery fell $4.25 to $991/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 50¢ to $115.18/bbl.

Contact Sam Fletcher at samf@ogjonline.com

 


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