MARKET WATCH: Energy prices fall despite bullish indicators

Energy prices declined Mar. 14 despite bullish inventory data from the Energy Information Administration and warnings from the International Energy Agency of supply disruptions. Crude dropped 1.2% in an afternoon selloff in the New York market while natural gas futures fell 0.6% on forecasts of mild weather.

“Oil products held up much better than crude, following reports of refinery shutdowns due to either poor economics or planned maintenance,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Low refinery runs have caused sizeable draws in US oil product stocks and pushed up product cracks at the front-end of the curves. Meanwhile, it has also caused the time spread in Brent to soften further.”

Zhang noted recent “very bullish news” of increased US payrolls, the Federal Reserve System’s “accommodative stance” on high oil prices, a hefty oil inventory draw last week, and IEA’s warning of a potential sharp fall in Iran’s oil exports. However, he said, “The oil market has failed every time to break out on the upside, which signals that the rally since the beginning of February has already been hugely over-stretched and is overdue for a sizeable correction to the downside. For now, we continue to see the current market as a good producer hedging opportunity on high swap prices and low volatility.”

In Zug, Switzerland, Olivier Jakob at Petromatrix said the European Union is looking at allowing issuance of insurance for non-European tankers carrying Iranian oil to non-European countries. He sees this as “a first sign that the EU and US realize that they have overshot a bit on the sanctions against Iran and that internal political pressure is increasing about the oil prices spinning out of control.” He said, “If the EU allows the issuance of insurance for Iranian cargoes, then that should make life easier for the Iranian flows to the Far East and help in the West-to-East rebalancing of Iranian crude oil supplies.”

Jakob reported the latest data from Eurostat, the EU’s statistical office, show the weighted average price of gasoline in Europe is up 12% from the peaks of July 2008 while diesel is up 5%. In the US, the American Automobile Association reported the average pump price for regular unleaded gasoline is $3.995/gal in New York and $4.018/gal in Washington, DC.

“Gasoline prices will continue to take center stage in US politics, and solar cells will be of no help for the US driver,” said Jakob. “In China, another price increase is expected any time now, that would then bring the Chinese domestic pump price for gasoline up 41% over the levels of July 2008.”

US inventories

The EIA reported Mar. 15 the withdrawal of 64 bcf of natural gas from US underground storage in the week ended Mar. 9, up from the Wall Street consensus of a 59 bcf pull. That left 2.4 tcf of working gas in storage—735 bcf more than in the comparable period last year and 807 bcf above the 5-year average.

EIA earlier said commercial US inventories of crude increased 1.8 million bbl to 347.5 million bbl last week. Gasoline stocks dropped 1.4 million bbl to 228.1 million bbl. Distillate fuel inventories fell 4.7 million bbl to 134.8 million bbl (OGJ Online, Mar. 14, 2012).

The weekly EIA report “continues to show US implied oil demand severely down vs. last year,” Jakob said. “Both gasoline and distillates are down about 7.1% vs. last year on the 4-week average. Total US implied oil demand is 1 million b/d lower than a year ago, and if US refinery runs are 800,000 b/d higher, it is because they are running for exports and not for the domestic markets.”

In Houston, analysts at Raymond James & Associates Inc. said, “Contributing to the sequential draw in total petroleum inventories were: 1) an 8% week-over-week jump in distillate demand and 2) petroleum imports of 10.5 million b/d, which continue to track at the bottom of the 5-year range. Cushing, Okla., posted its largest build of the year, up 2.5 million bbl to 38.7 million bbl (only 1.3 million bbl lower than this time last year).” They said, “Total petroleum demand was up 2% week-over-week, driven by the strength in distillate demand. Despite the mixed inventory data, crude sold off in the afternoon and finished the day down 1% against the backdrop of a weak broader market and a strengthening dollar.”

Jakob reported, “US refinery runs on the East Coast were steady, although the prompt margins are not much fun for the remaining refineries there. Refining margins have not been much fun in Europe neither, and combined with units shutting down for maintenance, lower European runs have provided some support for the structure in gasoline and ICE gas oil (both crack and spreads) and some pressure on the Brent structure (front spreads).”

He said, “Refinery runs were lower on the US Gulf Coast, but margins there are very comfortable and even more so for the crude that is railed from North Dakota. Healthy levels of crude oil imports on the Gulf Coast combined with the lower runs have resulted in a Gulf Coast oil stock build of 3.3 million bbl, stocks being 8 million bbl lower than a year ago.” Refining margins in the Midwest are “very strong,” with run levels maintained at a high level for the season.

Energy prices

The April contract for benchmark US sweet, light crudes dropped $1.28 to $105.43/bbl Mar. 14 on the New York Mercantile Exchange. The May contract fell $1.29 to $105.95/bbl. On the US spot market, West Texas Intermediate at Cushing was down $1.28 to $105.43/bbl.

Heating oil for April delivery slipped 0.94¢ to $3.26/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.76¢ but closed essentially unchanged at a rounded $3.35/gal.

The April natural gas contract declined 1.5¢ to $2.24/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3¢ to $2.12/MMbtu.

In London, the April IPE contract for North Sea Brent was down $1.25 to $124.97/bbl. Gas oil for April increased $2 to $1,038.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 30¢ to $124.29/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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