MARKET WATCH: Gas rises, crude declines in mixed market

Natural gas prices continued climbing in commodity futures and posted a strong rebound in the cash market on Apr. 3, but crude retreated on a lower-than-expected increase in US factory orders, concern over the Euro-zone, and the Federal Reserve’s hesitance to try yet again to stimulate the US economy.

“The oil market is clearly facing headwinds,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. A market rally prior to the Apr. 17 talks between Iran and the US Security Council “is unlikely,” he said.

“Oil products actually moved higher, which aligned with a hefty product inventory draw reported [after the session closed] by the American Petroleum Institute,” said Zhang. “Time spreads for Brent were weaker as well, which suggests that the tightness in the physical market has been easing despite very strong refining margins. The discount of West Texas Intermediate vs. Brent has now exceeded $21/bbl, which is likely to be driven by the continuous shift of investment money from WTI to Brent.”

Olivier Jakob at Petromatrix in Zug, Switzerland, reported, “Gasoline continues to trade to the stratosphere, with its backwardation and crack widening further. The opposite is, however, true of gas oil, and Brent is losing some of its backwardation despite the loss of cargoes due to the disruption at the Elgin field.” He noted the latest MasterCard Spending Pulse report of US retail gasoline sales at the pump was down 3.5% from the comparable week a year ago and down 5.9% on the 4-week average.

In other news, Reuters reported Saudi Arabia’s King Abdullah bin Abdul-Aziz Al Saud told US Sec. of State Hillary Clinton in a weekend meeting his kingdom won’t reduce production to offset a release of oil by the US and other countries from their strategic petroleum reserves nor will it discount the price of its crude to attract buyers.

“On the bearish side, it confirms that a SPR release is seriously being discussed,” said Jakob. “On the bullish side, if Saudi Arabia will not proactively cut supplies when the SPR is released, it confirms again that even at $125/bbl it does see the need to show more barrels to the world (‘we supply only what our customers ask for’). Our opinion remains that the win-win solution for the US would be to do a sweet-for-sour swap: In 2 years from now the US will be immune from disruption risks in West Africa due to the increased US light crude oil production, [and] the SPR sweet barrels will become much less valuable while the US will still be exposed to disruption risks in the Persian Gulf. A sweet-for-sour swap would also enable Saudi Arabia to allow a supply increase without discounting its official selling price.”

Meanwhile, Jakob said, “The US aircraft carrier USS Enterprise should soon cross the Suez towards the Persian Gulf, but the US Navy has taken the USS Vinson out of the gulf region and returned it to Pacific Command (it will be visiting East India over the weekend). This means that the US will not pressure Iran with three aircraft carriers around it” ahead of renewed talks between Iran and the West. The carrier USS Lincoln remains in the region.

US inventories

The Energy Information Administration said Apr. 4 commercial US inventories of crude jumped by 9 million bbl to 362.4 million bbl in the week ended Mar. 30, far above Wall Street’s consensus for a 2.5 million bbl increase. US crude inventories are above average for this time of year. Gasoline stocks, however, decreased 1.5 million bbl to 221.9 million bbl, slightly exceeding the expected draw of 1.4 million bbl. Both finished gasoline and blending components declined. Distillate fuel inventories remained unchanged at 135.9 million bbl; analysts had expected a 500,000 bbl reduction.

Imports of crude into the US were up 505,000 b/d to 9.8 million b/d last week. In the 4 weeks through Mar. 30, crude imports averaged 9 million b/d, an increase of 59,000 b/d from the comparable period last year. Gasoline imports last week averaged 885,000 b/d while distillate fuel imports averaged 224,000 b/d.

The input of crude into US refineries increased 299,000 b/d to 14.8 million b/d last week with units operating at 85.7% of capacity. Gasoline production increased to 9 million b/d, and distillate fuel production increased to 4.3 million b/d.

Energy prices

The May contract for benchmark US light, sweet crudes fell $1.22 to $104.01/bbl Apr. 3 on the New York Mercantile Exchange. The June contract dropped $1.21 to $104.55/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.22 to $104.01/bbl.

Heating oil for May delivery decreased 2.21¢ to $3.23/gal on NYMEX. Reformulated stock for oxygenate blending for the same month continued climbing, however, up 1.32¢ to $3.40/gal.

The May natural gas contract gained 3.5¢ to $2.19/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 8¢ to $1.99/MMbtu.

In London, the May IPE contract for North Sea Brent declined 57¢ to $124.86/bbl. Gas oil for April climbed $9 to $1,033.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.33 to $122.95/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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