MARKET WATCH: Oil prices climb in hopeful markets

Oil prices continued to climb Apr. 26 with North Sea Brent testing—but failing to sustain—$120/bbl despite a disappointing US unemployment report and the downgrade of Spain’s credit rating by Standard & Poor 's Ratings Services.

S&P reduced its long-term credit rating for Spain to BBB+ from A, citing the country’s growing debt and contracting economy. The Spanish government reported Apr. 27 unemployment rose to 24.4% in the first quarter from 22.9% in fourth-quarter 2011. That’s the highest current unemployment rate in the Euro-zone and the highest for Spain since 1994.

The US Department of Labor reported the number of people filing initial claims for unemployment benefits declined only 1,000 to 388,000 last week. Economists had expected new benefits applications to fall to 375,000.

The US Department of Commerce estimated the US economy grew in the first quarter at a rate of 2.2%/year, down from 3%/year in fourth-quarter 2011. However, DOC officials expect the US economic growth rate to average 3%/year this year with job growth stimulating consumer spending. Such spending increased to 2.9% in the latest quarter, spurred by auto sales.

In Houston, analysts with Raymond James & Associates Inc. reported, “The broader markets looked past the Euro-zone and a less-than-stellar jobs report yesterday and rose 1% on signs of improvement in the US housing market. Crude was restrained by the tough macropicture and traded flat on the day. Natural gas fell 2% after spiking 5% in the prior trading session.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Middle distillates were the strongest element of the oil complex, boosted by the larger-than-expected inventory draw in the US. Distillate inventories in Singapore and in the Amsterdam, Rotterdam, Antwerp region also fell. Time spreads in Brent were firmer following a report that [very large crude carrier] cargoes are moving from the North Sea to Korea.”

He said, “For the moment, the market appears far more convinced [by] the Federal Reserve System’s readiness to keep the dollar low, while the European Central Bank remains distracted and on the back foot.”

As for market fundamentals, Zhang said, “US crude inventories are at multiyear highs. Gasoline stocks are at the top end of [the] 5-year range while distillates dipped below its 5-year average level for the first time this year. The dated Brent market, the effective benchmark for a large portion of physical crude cargoes, is in contango at the front end of its curve. It’s worth pointing out therefore that although the current fundamentals are very different from the bull run in the first half of 2008, the Brent price is back around $120/bbl again.”

Energy prices

The June contract for benchmark US light, sweet crudes increased 43¢ to $104.55/bbl Apr. 26 on the New York Mercantile Exchange. The July contract gained 44¢ to $104.94/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was back in step with the front-month futures contract, up 43¢ to $104.55/bbl.

Heating oil for May delivery rose 3.33¢ to $3.19/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 2.76¢ to $3.18/gal.

The May natural gas contract dropped 3.2¢ to $2.04/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 8.5¢ to $2.08/MMbtu.

In London, the June IPE contract for Brent traded as high as $120.17/bbl before closing at $119.92/bbl, up 80¢ for the day. Gas oil for May escalated $21.25 to $1,017.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up $1.09 to $117.14/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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