MARKET WATCH: Oil prices fall, wiping out previous gain

Energy prices fell Apr. 18 wiping out most gains from the previous session as traders shrugged off a bullish report on inventories to follow the broader market down.

Analysts in the Houston office of Raymond James & Associates Inc. reported Standard & Poor’s 500 Index retreated “as lackluster earnings and a looming Spanish debt auction led to caution among investors.” But in just the previous session, the S&P 500 posted its largest gain in more than a month, up 1.6% on what then was described as strong earnings.

Crude fell 1.5% in New York while natural gas was relatively unchanged with its front-month contract hovering near a 10-year low. However, Raymond James analysts reported, “Service names outperformed the broader market [in the Apr. 18 session], buoyed by a better-than-expected earnings report from Halliburton Co. with the Oil Service Index finishing the day slightly in the green.” The SIG Oil Exploration & Production Index underperformed, falling 1.3% for the session.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, pointed out, “The oil market failed to recover yesterday, even after a sizeable draw in US commercial oil inventories, which presents a clear sign of weakness.” He said, “Despite a much larger-than-expected draw in US oil product inventories, oil product prices also declined.”

US inventories

The Energy Information Administration reported Apr. 19 the injection of 25 bcf of natural gas into US underground storage in the week ended Apr. 13, slightly exceeding Wall Street’s consensus of 24 bcf. The addition brought working gas in storage to 2.512 tcf; that’s 871 bcf more than in the comparable period a year ago and 919 bcf  above the 5-year average.

EIA earlier reported US commercial crude inventories expanded by 3.9 million bbl to 369 million bbl last week. Gasoline stocks dropped 3.7 million bbl to 214 million bbl. Both finished gasoline and blending components decreased. Distillate fuel inventories fell 2.9 million bbl to 129 million bbl (OGJ Online, Apr. 18, 2012).

Raymond James analysts said, “Yesterday's petroleum inventories update was bullish relative to consensus, as larger-than-expected draws in gasoline and distillates were partially offset by a larger-than-expected build in crude. Combining crude, gasoline, and distillates, inventories fell 2.7 million bbl vs. the consensus forecast for a build of 600,000 bbl. Contributing to the sequential draw in total petroleum inventories was a bounce on the demand side of the equation as gasoline and distillate demand rose 1% and 2%, respectively, week-over-week.”

They also noted inventories at Cushing, Okla., “continued to rise (up 600,000 bbl) and have now eclipsed last year's levels for the first time this year.”

Last week’s stock draw was less than in the comparable week a year ago, so the total stock surplus to last year increased to 37 million bbl and total US oil stocks are about at par to the levels of 2009 and 2010,: said Olivier Jakob at Petromatrix in Zug, Switzerland. “US crude oil stocks are 12 million bbl higher than a year ago, and the main stock deficit remains in distillates, which are 19 million bbl lower than a year ago and that deficit is widening. Stocks in the main visible categories (crude plus clean petroleum products) were down 2.8 million bbl during the week and are 3.3 million bbl below the levels of a year ago but have been overall very stable since the start of the year,” he said.

Jakob said, “Implied demand for clean petroleum products on the 4-week average is climbing back towards the levels of a year ago as the Department of Energy has been gradually trimming down its estimates of product exports. Implied demand for clean petroleum products on the 4-week average is now estimated to be down 1.6% vs. last year, with gasoline down 2.83%.” However, the latest MasterCard Spending Pulse report estimates US retail gasoline sales at the pump are down 5% from a year ago.

“Overall,” Jakob said, “the US is not outside of its seasonal patterns but with the main stock deficit remaining in distillates. Yesterday there was some significant pressure on the RBOB crack and front spread although that pressure was more evident at the start than at the end of the trading session.”

Energy prices

The May contract for benchmark US sweet, light crudes dropped $1.53 to $102.67/bbl Apr. 18 on the New York Mercantile Exchange. The June contract lost $1.52 to $103.12/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.53 to $102.67/bbl.

Heating oil for May delivery declined 0.84¢ to $3.12/gal on NYMEX. Reformulated stock for oxygenate blending for the same month fell 3.13¢ to $3.20/gal.

The May natural gas contract was unchanged at $1.95/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 2.1¢ to $1.86/MMbtu.

In London, the June IPE contract for North Sea Brent lost 81¢ to $117.97/bbl. Gas oil for May fell $8.75 to $985.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 53¢ to $115.74/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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