MARKET WATCH: Oil regains portion of recent losses

Oil posted modest gains Dec. 11 with front-month crude closing marginally higher in an afternoon rally despite weakness in early trading, ending a 5-session losing streak in the New York market.

A weakening dollar also helped buoy oil prices. However, natural gas was 1% lower with warmer weather.

There was a big rally in the equity market, marking the fifth session of gains to the highest level since the presidential election. It was driven by renewed hope Congress will reach an 11th-hour agreement on the budget to forestall a fiscal cliff at the end of this year.

Stocks and bond yields continued rising Dec. 12 after Federal Reserve Bank officials said the system will spend $45 billion/month to sustain its aggressive drive to keep long-term interest rates low. At the close of their final policy meeting of the year, Fed officials said they plan to keep a key short-term interest rate near zero until US unemployment drops below 6.5% from 7.7% in November.

In Houston, analysts at Raymond James & Associates Inc. said treasury printing presses “will need to work overtime.”

The brief, uneventful meeting of ministers of the Organization of the Petroleum Exporting Countries in Vienna didn’t attract as much attention as they announced Dec. 12 they will to maintain their official production level of 30 million b/d.

“The biggest challenge facing global oil markets in 2013 is uncertainty surrounding the global economy, with the fragility of the Euro-zone remaining a major concern,” they said at the end of the meeting. “Although world oil demand is forecast to increase slightly during 2013, this is likely to be more than offset by the projected increase in non-OPEC supply.” Therefore, they project demand for OPEC crude in 2013 will contract to 29.7 million b/d.

US inventories

The Energy Information Administration said Dec. 12 commercial US crude inventories increased by 800,000 bbl to 372.6 million bbl in the week ended Dec. 7, well above average for the time of year. Gasoline stocks jumped 5 million bbl to 217.1 million bbl, with increases in both finished gasoline and blending components. Distillate fuel inventories escalated 3 million bbl to 118.1 million bbl, still well below average.

Imports of crude rose 269,000 b/d to 8.5 million b/d last week. In the 4 weeks through Dec. 7, crude imports averaged 8.2 million b/d, which was 631,000 b/d below the comparable period in 2011. Gasoline imports last week averaged 585,000 b/d while distillate fuel imports averaged 191,000 b/d.

The input of crude into US refineries decreased 62,000 b/d to 15.4 million b/d with units operating at 90.4% of capacity. Gasoline production decreased to 8.9 million b/d while distillate fuel production decreased to 4.8 million b/d.

Energy prices

The January contract for benchmark US light, sweet crudes regained 23¢ to $85.79/bbl Dec. 11 on the New York Mercantile Exchange. The February contract recouped 22¢ to $86.32/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month futures contract up 23¢ to $85.79/bbl.

Heating oil for January delivery gained 3.08¢ to $2.93/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 1.24¢ to $2.61/gal.

The January natural gas contract continued falling, however, down 4.8¢ to $3.41/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1.2¢ to $3.38/MMbtu.

In London, the January IPE contract for North Sea Brent rose 68¢ to $108.01/bbl. Gas oil for December dipped 25¢ to $903.50/tonne.

The average price of OPEC’s basket of 12 benchmark crudes declined 21¢ to $104.80/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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