MARKET WATCH: Oil prices dip under economic pressures

Oil prices slipped lower Apr. 30 on discouraging US economic data and news that Spain is again in double-dip inflation, but natural gas rose 4.5% in the New York market on forecasts for cooler weather next week.

“Gasoline underperformed crude, though middle distillates actually ended the day higher,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

In Houston, analysts at Raymond James & Associates Inc. reported, “A major concern for investors is whether Spain is too big to rescue, considering that its economy is twice as big as Greece, Portugal, and Ireland combined. At the end of the trading session, the Standard & Poor’s 500 Index was down 0.4%, while crude oil futures traded flat.”

With Spain now on the “getting-longer list of European nations officially and technically in recession,” said Olivier Jakob at Petromatrix in Zug, Switzerland, “it is no big surprise to receive the preliminary Spain oil demand [report] for March showing gasoline demand down 2.9% vs. a year ago and diesel down 6.5%. Natural gas demand was down 8.3% vs. last year. They are driving less and less in Spain but also building less cars as car production was down 25% in March vs. last year and down 16% for the first quarter. Car registrations in the Euro-zone in March were down 7.5% vs. a year ago.

Zhang said, “The recent trend of summer [economic] weakness appears set to emerge for a third year running for the developed economies, with the market increasingly looking towards central banks for support. As to oil market fundamentals, low seasonal demand during the second quarter appeared to have kept the market under pressure, while, with Brent hovering just below $120/bbl however, economic growth will also continue to feel the drag from high oil prices. In addition, Saudi Arabia has clearly stepped up its effort in pumping more oil to the market. Therefore, although we believe lower demand and increased supply should cap prices for now, geopolitical risks and monetary policies continue to threaten consumers with upside risks. Meanwhile, the US Federal Reserve System is again readying itself to step in and provide support.”

Jakob reported, “With the start of the new export facilities in the south, crude oil exports from Iraq continue to increase and at 2.5 million b/d for April are 370,000 b/d higher than a year ago. Exports of crude oil from Kuwait and Saudi Arabia are also higher than a year ago, hence if there is some uncertainty about how much Iran is really exporting, exports out of Kuwait, Saudi Arabia, and Iraq are together higher by 1.5 million b/d vs. April 2011. Add Libya and that makes for those four countries a difference of 2.9 million b/d vs. last year.”

In other news, a Delta Air Lines Inc. subsidiary agreed to buy the 185,000 b/d Trainer, Pa., refinery near Philadelphia from Phillips 66 Co. for $180 million (OGJ Online, May 1, 2012). Delta “also agreed that for the next 3 years BP PLC will be selling it the crude oil necessary to run the refinery (initial noise was that it was JP Morgan that was supposed to do that),” Jakob said. The refinery’s previous output was some 105,000 b/d of gasoline and 65,000 b/d of distillates, including jet fuel. “The speculative interest in gasoline futures has been reduced since the start of those talks, and indeed we need now to add about 100,000 b/d of gasoline supplies on the US East Coast for the third quarter (probably the end rather than the start of the quarter). On the other hand, the restart of the Trainer refinery will bring some relief to the West African markets that have been under pressure since the US East Coast refinery closures and the restart of Libyan production,” said Jakob.

Energy prices

The June and July contracts for benchmark US sweet, light crudes each lost 6¢ Apr. 30 to $104.87/bbl and $105.26/bbl, respectively, on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the July futures contract down 6¢ to $104.87/bbl.

Heating oil for May delivery inched up 0.27¢ but closed essentially unchanged at a rounded $3.18/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 2.18¢, also closing at $3.18/gal.

The June natural gas contract continued climbing, up 9.9¢ to $2.29/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rebound by 8¢ to $2.11/MMbtu.

In London, the June IPE contract for North Sea Brent dropped 36¢ to $119.47/bbl. Gas oil for May fell $1.25 to $1,007.25/tonne.

The Organization of Petroleum Exporting Countries’ Vienna office was closed May 1 with no price updates posted for its basket of 12 benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com.

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