MARKET WATCH: Crude price down marginally on bearish inventory report

Energy markets generally declined Jan. 9 with front-month crude down a marginal 0.1% following a bearish US inventory report. Natural gas continued its decline, falling 3.3% in the New York market.

However, crude prices strengthened in early trading Jan. 10 with benchmark US crudes at the highest level since September and North Sea Brent at its highest since October, said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “The impetus for this strong rally is largely owed to strong and much-better-than-expected Chinese trade numbers, with some dollar weakness adding some extra support,” he said.

After showing no growth in November, China’s total imports climbed 6% in December from the same period in 2012, exceeding market expectations of a 3.5% gain. “However, it was the resurgence in exports (14.1% year-over-year compared with expectations of 5%) that has really bolstered confidence in the Chinese economy,” Ground said. “Net imports of crude oil were up 1.5% year-over-year in December. On an annual basis, net crude oil imports were 9.2% higher in 2012 than in 2011, an improvement on the 4.7% year-over-year growth seen from 2010 to 2011.”

Meanwhile, Saudi Arabia reduced its oil production 465,000 b/d in December—“the largest monthly cut since November 2008,” said analysts in the Houston office of Raymond James & Associates Inc. They noted Saudi Arabia has reduced production more than 700,000 b/d over the last 2 months, with output now down to roughly 9 million b/d from a peak rate of 10.1 million b/d in June. They said, “Saudi Arabia is surprisingly being proactive to what we believe is an oversupplied oil market.”

US inventories

The Energy Information Administration reported Jan. 10 the withdrawal of 201 bcf of natural gas from US underground storage in the week ended Jan. 4, surpassing Wall Street’s consensus for an outtake of 191 bcf. That left 3.316 tcf of working gas in storage, down 88 bcf from the comparable period in 2012 but 320 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased 1.3 million bbl to 361.3 million bbl in that same week, less than Wall Street’s consensus for a 2 million bbl gain. However, gasoline stocks jumped 7.4 million bbl to 233.1 million bbl in that period, far exceeding the expected 2.5 million bbl gain. Finished gasoline inventories decreased while blending components increased. Distillate fuel stocks escalated 6.8 million bbl to 130.7 million bbl, far above the 1.9 million bbl increase the market anticipated (OGJ Online, Jan. 9, 2013).

Although crude stocks rose less than expected, the aggregate of crude, gasoline, and distillates “soared by 15.5 million” compared with the predicted build of 6.4 million bbl, Raymond James analysts said, “Though product crack spreads (particularly gasoline) have succumbed to seasonal weakness, refiners continue to operate at high utilization rates (89.1% last week) given a Brent-West Texas Intermediate spread of $18/bbl and regional crude differentials that continue to drive healthy margins. Cushing, Okla., inventories increased yet again to 50.1 million bbl (another record high), and total days of supply climbed to 49.7 days (1.4 days above year-ago levels and also a multiyear high).”

Energy prices

The February contract for benchmark US sweet, light crudes dipped 5¢ to $93.10/bbl Jan. 9 on the New York Mercantile Exchange. The March contract decreased 4¢ to $93.56/bbl. On the US spot market, WTI at Cushing was down 5¢ to $93.10/bbl in step with the front-month futures contract.

Heating oil for February delivery continued to rise, up 1.14¢ to $3.07/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 1.55¢ to $2.78/gal.

The February natural gas contract continued its losing trend, falling 10.5¢ to $3.11/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 9.3¢ to $3.12/MMbtu.

In London, the February IPE contract for Brent retreated 18¢ to $111.76/bbl. Gas oil for January gained $3.25 to $948.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 29¢ to $109.01/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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