MARKET WATCH: Oil prices retreat; gas prices continue rally

Oil prices declined Jan. 15 in their daily seesaw pattern with crude down 1% in the New York market, but the front-month natural gas futures contract continued to rally, gaining 2.4% because of colder weather.

In Houston, analysts at Raymond James & Associates Inc. said, “Broader markets ended up flattish after US retail sales data came in better than expected.” They reported, “European car sales fell to a 17-year low, and the World Bank cut its 2013 global gross domestic product growth forecast from 3% to 2.4%.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, sees a change “already under way in the dynamic between” West Texas Intermediate and North Sea Brent crude primarily because of the reopening of the expanded Seaway Pipeline carrying oil from Cushing, Okla., to Gulf Coast refineries (OGJ Online, Jan. 14, 2013).

“This should enable a working down of the tremendous inventories that have built at Cushing…and hence alleviate some of the drag on the WTI price. Crude oil stocks at Cushing have risen from 29.1 million bbl at the start of 2012 to 50.1 million bbl for the week ended Jan. 4. In addition, this will also reduce the reliance of Gulf Coast refineries on oil imports, taking away some support for the Brent price against which these sources of imports are benchmarked. However, we view the consequent narrowing of the spread between the two benchmarks as a long-term play for several reasons,” Ground reported.

While the pipeline’s capacity has more than doubled, he said, “Even without any additional flows into Cushing, it would take some time before the glut of crude oil stocks is completely removed. By our calculations, to get inventory levels back to their 5-year average, without any new flows into Cushing, it would take approximately 2 months.”

Ground said, “This we feel is a lower limit on the time it would take to remove the glut, since we expect ever-increasing flows into Cushing as the Bakken light tight oil and Canadian oil sands production continues to escalate. Some of this increased supply is expected to be directed to East Coast refineries, but we still feel that increasing flows into Cushing will persist.”

Also, he said, “There is still considerable risk of more [demand] weakness in the US, despite recent encouraging macro indicators. Policy uncertainty, both fiscal (debt ceiling and spending cuts) and monetary (will the Federal Reserve Bank end quantitative easing sooner than anticipated?), abounds in the first quarter.” On top of that, he said, geopolitical concerns in Iran and Syria likely will continue to provide support for Brent “well into the first half of 2013.

US inventories

The Energy Information Administration said Jan. 16 commercial US crude inventories dropped 1 million bbl to 360.3 million bbl in the week ended Jan. 11, opposite Wall Street’s consensus for a 2.2 million bbl gain. Gasoline stocks increased 1.9 million bbl to 235 million bbl in the same week, less than analysts’ expectations of a 2.7 million bbl build. Finished gasoline inventories decreased while blending components increased. Distillate fuel stocks were up 1.7 million bbl to 132.4 million bbl. Analysts had anticipated an increase of 1.5 million bbl.

Imports of crude into the US fell 312,000 b/d to 8 million b/d in the same period. In the 4 weeks through Jan. 11, crude imports averaged 7.9 million b/d, down 1.2 million b/d from the comparable period in 2012. Gasoline imports last week averaged 375,000 b/d while distillate fuel imports averaged 186,000 b/d.

The input of crude into US refineries was down 156,000 b/d to 15.1 million b/d last week with units operating at 87.9% of capacity. Gasoline production increased to 8.6 million b/d as distillate fuel production decreased to 4.6 million b/d.

Energy prices

The February contract for benchmark US light, sweet crudes dropped 86¢ to $93.28/bbl Jan. 15 on the New York Mercantile Exchange. The March contract decreased 87¢ to $93.72/bbl. On the US spot market, WTI at Cushing was down 86¢ to $93.28/bbl in step with the front-month futures contract.

Heating oil for February delivery fell 5.12¢ to $3.01/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 4.75¢ to $2.71/gal.

The February natural gas contract continued climbing, however, up 8.2¢ to $3.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., inched up 0.8¢ to $3.40/MMbtu.

In London, the February IPE contract for North Sea Brent was down $1.58 to $110.30/bbl. Gas oil for February rose $6.25 to $960.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 29¢ to $108.35/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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