MARKET WATCH: Economic worries push down energy prices

Oil prices dipped Apr. 13 because of disappointing economic data from China, weaker-than-expected US consumer confidence, and increased concern over Spanish and Italian debt.

“The broader market logged its worst weekly performance of the year,” said analysts in the Houston office of Raymond James & Associates Inc. “Last week also marked the first time in a decade that Henry Hub natural gas closed below $2/Mcf. Meanwhile, over the weekend, China took a small step toward becoming more of a global currency by widening the trading band to plus-or-minus 1% between the yuan and the US dollar.” Oil and gas prices remained down in early trading Apr. 16.

The May contract for Brent expired Apr. 13 “following a sharp drop in the time spread between May and June contracts since the beginning of April,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “The front-end of Brent remained under pressure as crude supply appeared to have surpassed demand in recent weeks, judging from the price activity in both the time spread and price differentials of physical crude cargoes over dated Brent.” Oil products held up relatively better with production disrupted by refinery maintenance.

The International Energy Agency in Paris last week predicted a meaningful build of global oil inventories in the second quarter. But Zhang said weekly oil stocks in the US, in the Amsterdam, Rotterdam, Antwerp region, and in Singapore have fallen because of declining product stocks. “These keep refining margins well supported for now,” he said. “However, we expect the situation to reverse as the spring maintenance season might have peaked already. In addition, oil inventories across the three regions remained at the high end of their respective 5-year range, which is more aligned with the IEA forecast.”

Zhang maintains a bearish outlook on oil market fundamentals because of increased Saudi Arabian crude production and the continuous decline in demand among members of the Organization for Economic Cooperation and Development.

Analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC, said, “North Sea cash differentials to Brent crude futures have been narrowing since January. Forties crude is now trading at a discount of 20¢/bbl to Dated Brent, compared to a premium of 20¢/bbl a week ago. And this despite a BFOE [Brent, Forties, Oseberg, and Ekofisk fields] May loading program of 875,000 b/d, down from 1 million b/d in April. Normally a drop like this would suggest that the premium would increase, not fall.

They noted market reports that large North Sea cargos have finished loading for Asia. “Now there is mounting concern over Asian demand,” they said. Chinese authorities increased both gasoline and diesel prices last month, but refiners there are finding they still refine expensive crude at a loss. Reuters reported that a survey showed an expectation that runs there would be cut to nearly 3-year lows. While product exports (of both gasoline and diesel) are likely to be the first casualty of lower Chinese runs, the fact remains that domestic product demand is not growing as strongly as in the past. News of a relatively weak macroeconomic performance in the first quarter underpins this.”

Meanwhile, KBC analysts reported, “Regional heavyweight US demand continues to contract, and with burgeoning domestic US crude production, US refiners’ thirst for relatively more expensive Brent-price-related crudes is tepid at best and something more honestly to be avoided at every opportunity. US crude imports have dropped from 9.8 million b/d to 8.5 million b/d (13%) in only 2 weeks—not exactly the way to start a run at what should be seasonally growing product demand.”

They said, “There is no getting away from the fact that the market is starting to look over-supplied. Demand growth remains tepid at best with supply-fear-induced high prices doing nothing to help. Certainly not the environment for a release of consumer stocks, something that may happen [as a political ploy for upcoming elections in the US and France] irrespective of any underlying need to do so.”

Energy prices

The May contract for benchmark US light, sweet crudes declined 81¢ to $102.83/bbl Apr. 13 on the New York Mercantile Exchange. The June contract decreased 78¢ to $103.32/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 81¢ to $102.83/bbl.

Heating oil for May delivery increased 0.83¢ to $3.17/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 1.06¢ to $3.35/gal. The May natural gas contract dipped by 0.2¢ but closed essentially unchanged at a rounded $1.98/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 1¢ to $1.88/MMbtu.

In London, the expiring May IPE contract for North Sea Brent gained 12¢ to $121.83/bbl. Gas oil for May rose $4.25 to $1,008.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 38¢ to $119.10/bbl. So far this this year, the OPEC basket price has averaged $117.84/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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