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MARKET WATCH: Crude ends losing streak in NY market

Crude oil prices inched up May 10, breaking a six-session losing streak in the New York market, but global economic problems remain grim with markets under pressure as Greece tries for a third time to form a coalition government among diverse political parties.

Moreover, JP Morgan Chase & Co., the biggest US bank, announced it lost $2 billion in the second quarter through a trading group that manages the bank’s risks with its own money. That “put a damper” on early trading May 11 in the equity and commodity markets, said analysts in the Houston office of Raymond James & Associates Inc.

“A few weeks ago, a JP Morgan trader made a name for himself (‘the Whale of London’) for the large positions he was taking in the Chief Investment Office division of the bank,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Yesterday in the after-hours, there was a bit of panic when JP Morgan held a conference call to announce a significant $2 billion loss in the CIO division with a risk that this could be just the tip of the whale as JP Morgan also decided to double the value-at-risk of the CIO division.”

As for May 10 trade in commodities, Jakob said, “We have seen markets with greater convictions. West Texas Intermediate had a dip to the support of its 200-day moving average that was followed by a $1/bbl rally, but that was followed by Brent hitting the resistance of its 200-day moving average followed by a $1/bbl correction. Given that dips have been bought throughout the week, it is a bit of a concern that Brent could not find enough follow-through to break the resistance of $113.60/bbl. The Brent premium to WTI gave up some of the recent gains, and we need to keep in mind that the Seaway pipeline reversal is expected to start [May 17] (OGJ Online, May 7, 2012).”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market had another mixed day yesterday as participants appeared to be undecided after the recent sharp fall.” He said, “Brent spreads were softer, while WTI spreads strengthened, which clearly signaled an unwinding of long Brent-WTI spread box positions. Oil products largely followed the moves in Brent.”

Zhang also noted, “Chinese April industrial production rose 9.3%, much slower than the expected 12.2%, confirming the weak Purchasing Manager Index survey reported in recent months. There were few other significant economic data releases.”

In its May 11 market report, the International Energy Agency in Paris said, “Crude markets reversed their upward course in April and by early May futures prices had fallen $10-12/bbl amid disappointing economic data for the US and Europe and an apparent easing of tensions between the international community and Iran. Brent crude was last trading near a 3-month low of $113/bbl, with WTI at $97/bbl.”

IEA said global oil production increased 600,000 b/d to 91 million b/d in April, up 3.9 million b/d from the year-ago level. Increased output from Iraq, Nigeria, and Libya raised production among members of the Organization of Petroleum Exporting Countries by 410,000 b/d, to 31.85 million b/d, with the call on OPEC now at an average 30.3 million b/d.

“Non-OPEC supply increased by 100,000 b/d to 52.9 million b/d in April as a seasonal rise in biofuels output offset declining supplies in the UK and Canada,” IEA reported. “Despite persistent non-OECD outages in 2012, production growth in North America should average 600,000 b/d for the remainder of the year, lifting non-OPEC supplies by 600,000 b/d year-over-year to 53.3 million b/d,” it said.

IEA officials said global oil consumption is to rise 800,000 b/d (0.9%) in 2012, to 90 million b/d, with gains in the non-OECD more than offsetting declining OECD demand. “After posting near-zero annual growth in the fourth quarter of 2011, global demand growth is forecast to gradually accelerate throughout 2012, culminating in an expansion of 1.2 million b/d by the fourth quarter,” they said.

IEA reported OECD commercial oil inventories increased by 13.5 million bbl in March, to 2.6 billion bbl, “lifting total stocks above the 5-year average for the first time since May 2011.” Moreover, forward demand cover rose by 0.5 day to 60.3 days, 3 days above the 5-year average. Preliminary data indicate a modest 5.1 million bbl increase in industry stocks in April, it said.

Energy prices

The June contract for benchmark US light, sweet crudes increased 27¢ to $97.08/bbl May 10 on the New York Mercantile Exchange. The July contract advanced 26¢ to $97.41/bbl. On the US spot market, WTI at Cushing, Okla., remained in step with the front-month crude contract, up 27¢ to $97.08/bbl.

Heating oil for June delivery declined 1.57¢ to $2.98/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 1.39¢ to $3.01/gal.

The June natural gas contract rose 2.2¢ to $2.49/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., slipped 2.8¢ to $2.34/MMbtu.

In London, the June IPE contract for North Sea Brent dropped 47¢ to $112.73/bbl. Gas oil for May was unchanged at $958.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was up 21¢ to $110.06/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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