MARKET WATCH: Unexpected inventory decline boosts crude oil price

The new front-month contract for benchmark US crude oil rebound by 1.5% Mar. 21 in the New York market following a government report of an unexpected draw last week from commercial inventories.

Natural gas rose 1.1%, “buoyed by technical buying,” said analysts in the Houston office of Raymond James & Associates Inc. However, crude, gas, and broader market prices declined in early trading Mar. 22, “bogged down by weak economic data out of China,” they said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market was mixed again with West Texas Intermediate making some gains while Brent was little changed. Oil products were softer in general with reformulated stock for oxygenate blending (RBOB) gasoline faring better than the rest of the complex. The front-end of the Brent structure actually strengthened as refining margins in both northwest Europe and the Mediterranean improved substantially so far this week. The margin improvement was led by a strong gasoline crack, a softer dated Brent market, and very weak Urals price differentials in both regions.”

Nevertheless, Zhang said, “Oil is more exposed to the downside than to the upside for now. Since the beginning of this month, the market has been trading in a range-bound pattern, struggling to find direction. Implied volatility has declined substantially since the beginning of this year. We do not expect this relatively calm market condition to last long as the oil market braces itself for interventions or even shocks. We are starting to see implied volatility being undervalued, particularly at the front-end of the term structure.”

With retail gasoline now averaging $3.86/gal in the US, Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The price of oil gains each week a greater place in the political debate, and the US president is traveling to the [Cushing, Okla., transportation and storage] hub today to explain all that he does to combat high oil prices. He will announce that the southern leg of the Keystone XL crude oil pipeline project (from Cushing to the Gulf Coast) is now a top priority and that all federal agencies should fast-track the project. It is a bit of a political show given that the southern leg of the XL did not require federal support, but nonetheless it will bring more focus to the Cushing to Gulf Coast pipelines expansions over the next 2 years.”

Jakob said, “It will be interesting to see whether the president refers or not to the Strategic Petroleum Reserve. The French ministry of energy still lists a stock release as one of the options available to bring prices down. It is interesting to see the western governments thanking Saudi Arabia for its ‘commitment’ to supply the markets while at the same time they make SPR contingency plans.”

Paul Horsnell, managing director of commodities research at Barclays Capital, London, said, “A strategic stock release, either unilateral or via the International Energy Administration, appears inevitable. However, we have doubts as to whether the execution and size of a release will be adequate to reduce prices for a sustained period.”

He said, “The market remains stretched in terms of spare [production] capacity in our view, and it is close to the point where the price-reducing effect of further output increases is likely to be countered by the price-increasing effect of perceived reductions in spare capacity.”

US inventories

The Energy Information Administration reported Mar. 22 the injection of 11 bcf of natural gas into US underground storage in the week ended Mar. 16, exceeding the Wall Street consensus for a 9 bcf injection. Working gas in storage increased to 2.38 tcf, up 766 bcf from the comparable period last year and 835 bcf above the 5-year average.

EIA earlier reported commercial US inventories of crude dropped 1.2 million bbl to 346.3 million bbl last week. The Wall Street consensus was for an increase of 2.2 million bbl. Gasoline stocks dropped 1.2 million bbl to 226.9 million bbl, short of the 2 million bbl decline analysts expected. Finished gasoline inventories increased while blending components decreased. Distillate fuel stocks gained 1.8 million bbl to 136.6 million bbl, countering the 2.2 million bbl draw the market expected (OGJ Online, Mar. 21, 2012).

“Overall, total petroleum inventories (including jet fuel, residuals, and unfinished oils) fell by 1.6 million bbl to 868.3 million bbl,” said Raymond James analysts. They attributed this to the unexpected draw in crude and lower petroleum imports, “which are tracking below the 5-year range.”

Raymond James analysts also noted US demand for gasoline, distillate, and total petroleum demand was down last week. “The standout was distillate demand, which dropped 16% to a 5-year low,” they said. “Separately, after 2 straight weeks of builds exceeding 2 million bbl, Cushing posted its first draw (200,000 bbl) in 4 weeks.”

Energy prices

The new front-month May contract for benchmark US sweet, light crudes regained $1.20 to $107.27/bbl Mar. 21 on the New York Mercantile Exchange. The June contract increased $1.16 to $107.75/bbl. On the US spot market, WTI at Cushing was up $1.26 to $106.87/bbl.

Heating oil for April delivery continued its decline, down 2.05¢ to $3.22/gal on NYMEX. RBOB for the same month dipped 0.6¢ but closed unchanged at a rounded $3.36/gal.

The April natural gas contract rebound by 2.5¢ to $2.36/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., slipped 0.3¢ to finish virtually unchanged at a rounded $2.19/MMbtu.

In London, the May IPE contract for North Sea Brent increased 8¢ to $124.20/bbl. Gas oil for April continued its fall, down $5.25 to $1,026.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 14¢ to $122.91/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Inhofe, Lankford say new BIA rules threaten Osage oil operations

07/10/2015 New US Bureau of Indian Affairs regulations that increase production expenses on tribal lands could put the Osage Nation out of business, Oklahoma’...

House panel’s crude export ban hearing weighs urgency against caution

07/10/2015 A US House Energy and Commerce subcommittee hearing on legislation to repeal the ban on exporting US-produced crude oil quickly broke along party l...

Chevron Phillips Chemical makes executive appointments

07/10/2015

Chevron Phillips Chemical Co. LLC has made several executive appointments, all effective Aug. 1.

Twelve workers killed in Nigeria pipeline explosion

07/10/2015 Eni SPA reported that an explosion occurred July 9 at the repair site for the Tebidaba-Clough Creek oil pipeline in Nigeria’s onshore Niger Delta.

Gov. Tomblin forms West Virginia oil, gas safety commission

07/10/2015 West Virginia Gov. Earl Ray Tomblin (D) established the oil and gas safety commission he announced in his 2015 State of the State address. The grou...

MARKET WATCH: NYMEX, Brent crude oil prices rebound more than $1/bbl

07/10/2015 Prices for US light, sweet crude oil and Brent crude each rebounded by more than $1/bbl on their respective markets July 9, and analysts attributed...

Transco seeks FERC approval for New York Bay Expansion project

07/09/2015 Transcontinental Gas Pipe Line Co. LLC (Transco), a wholly owned subsidiary of Williams Partners LP, has filed an application with the US Federal E...

House Oversight panel subpoenas Kerry for Keystone XL documents

07/09/2015 The US House Oversight and Government Reform Committee issued a subpoena to US Sec. of State John F. Kerry for reports, recommendations, letters, a...

MARKET WATCH: NYMEX crude oil prices drop for fifth consecutive trading session

07/09/2015 US light, sweet crude oil prices settled slightly lower on the New York market July 8 for the fifth consecutive trading session, and analysts attri...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected