MARKET WATCH: Crude oil price climbs in strong rally

The price of crude oil climbed 2.1% in a strong rally Apr. 2. Natural gas also rose 1.2% in the New York futures market, but in the cash market gas hit a 10-year low.

Some analysts credited better-than-expected numbers for the US and China in the latest Institute for Supply Management (ISM) Manufacturing Index for boosting oil futures prices. However, Olivier Jakob at Petromatrix in Zug, Switzerland, said the ISM “has really not changed much for 4 months.” Moreover, he sees “too great a divergence” between the official and the Hong Kong and Shanghai Banking Corp.’s Purchasing Manager Index (PMI) surveys for China “to trade the official numbers with confidence.” He said, “Meanwhile, the unemployment reports and the Euro-zone PMIs were on the negative side, with the German Makrit PMI showing a contraction from 50.2 to 48.4 in March, and the Euro-zone as a whole contracting further from 49 in Feb to 47.7.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “Oil products tracked the performance of the crude oil market to maintain strong refining margins, in particular for European refiners. Despite the robust refining margins, the front-end of the Brent spread softened yesterday and the dated Brent market was also lackluster. The back-end of the Brent curve strengthened as the rally in Brent must have attracted inflows of producer hedging.”

This will be a short trading week ahead of the Easter weekend, but it will be packed with several economic data releases. As a result, Zhang said, “The market is expected to trade in a relatively more volatile fashion than normal. It is somewhat surprising that the very strong refining margins in Europe have so far failed to push the time spread much higher. The ongoing maintenance season eases demand for crude oil, so there should be plenty of spare capacity to absorb more crude in order to capture the high margins. That said, forward margins remain soft, which leads refiners to commit to long-dated cargoes.”

He noted, “As prices recovered yesterday, implied volatility declined again after a slight increase last week. Looking ahead, the oil market continues to face risk of government intervention due to the high oil prices, while geopolitical risk is unlikely to increase before the negotiation between Iran and the members of UN Security Council on Apr. 17.”

In other news, analysts in the Houston office of Raymond James & Associates Inc. reported Yemeni militants blew up a second pipeline in retaliation for the Mar. 30 US drone strike that killed five suspected Al-Qaeda operatives. Islamic militants Ansar al-Sharia claimed responsibility for blowing up a pipeline in southern Yemen that transports oil from three southern fields to the Ash Shihr terminal. The latest incident mirrors a Mar. 30 attack on a natural gas pipeline “that forced a halt at the $4.5 billion Balhaf LNG export facility, Yemen's largest industrial project, operated by Total SA,” they said. “Yemen produces 260,000 b/d of crude when all fields are operational.”

Energy prices

The May contract for benchmark US sweet, light crudes climbed by $2.21 to $105.23/bbl Apr. 2 on the New York Mercantile Exchange. The June contract rose $2.22 to $105.76/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.21 to $105.23/bbl.

Heating oil for May delivery gained 7.95¢ to $3.25/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 7.41¢ to $3.38/gal.

The May natural gas contract regained 2.6¢ to $2.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 5.4¢ to $1.91/MMbtu.

In London, the May IPE contract for North Sea Brent was up $2.55 to $125.43/bbl. Gas oil for April increased $10.25 to $1,024.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes advanced 77¢ to $121.62/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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