MARKET WATCH: Crude prices fall to lowest level this year for front-month contract

Crude prices fell sharply for the second consecutive day Feb. 21, with the front-month contract down 2.5% to the lowest level this year in the New York market following a bigger-than-expected jump in the commercial US inventory. The price of crude lost almost 5% in the Feb. 20-21 sessions.

“Yesterday was a reality check for oil bulls with the Department of Energy reporting a fifth consecutive week of crude inventory builds. US oil stockpiles are currently at a seasonal all-time high,” said analysts in the Houston office of Raymond James & Associates Inc. Fallout for energy stocks was “relatively mild” with the SIG Oil Exploration & Production Index declining 0.2% and the Oil Service Index down 1.5% after larger losses the previous session. “Broader markets fell a second straight day with US employment concerns and the Euro-zone still dominating sentiment. The Standard & Poor’s 500 Index closed down 0.6%,” they said.

DOE’s Energy Information Administration said commercial US crude inventories escalated 4.1 million bbl to 376.4 million bbl in the week ended Feb. 15, well above Wall Street’s consensus for a 2 million bbl gain. Gasoline stocks dropped 2.9 million bbl to 230.4 million bbl in the same period, outstripping analysts’ outlook for a 900,000 bbl decline. Finished gasoline inventories increased while blending components decreased. Distillate fuel stocks fell 2.3 million bbl to 123.6 million bbl, below market expectations of 1.8 million bbl loss (OGJ Online, Feb. 21, 2013).

Raymond James analysts reported, “Much of the data from the release leaned bearish. Refinery utilization edged down yet again [last] week, from 83.8% to 82.9%. Total petroleum demand continued its roller coaster ride, falling 3.3% after rising 5.5% the previous week. (That said, on a 4-week moving average basis, total petroleum demand was up 0.2% compared with last year.)” Cushing, Okla., inventories increased for the first time in 3 weeks, up 400,000 bbl to 50.7 million bbl.

Analysts at Barclays Capital Commodities Research, New York, said, “This week saw a shift in directional momentum in crude oil markets, with prices easing from 7-month highs. Natural gas prices edged slightly higher on news of a bigger-than-consensus storage withdrawal. The end-of-season storage level has very little room to move compared with our expected 1.9 tcf as winter is almost over, indicating prices should be range-bound in the near term.”

EIA reported the withdrawal of 127 bcf of natural gas from US underground storage in the week ended Feb. 15, up from Wall Street’s consensus for a 124 bcf pull. That left 2.4 tcf of working gas in storage, down 242 bcf from a year ago but 361 bcf above the 5-year average (OGJ Online, Feb. 21, 2013).

Meanwhile, European Union officials on Feb. 22 said the group’s overall economy likely will decline 0.3% this year, despite expected improvement in the second half. That’s down from an earlier prediction of 0.1% growth.

Energy prices

Energy prices were down across the board. Both the new front-month April contract and the May contract for benchmark US light, sweet crudes fell $2.38 to $92.84/bbl and $93.27/bbl, respectively Feb. 21 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing declined $1.62 to match the April futures closing price of $92.84/bbl.

Heating oil for March delivery dropped 6.06¢ to $3.10/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 2.3¢ to $3.04/gal.

The March natural gas contract retreated 3.3¢ to $3.25/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 2.5¢ to $3.29/MMbtu.

In London, the April IPE contract for North Sea Brent was down $2.07 to $113.53/bbl. Gas oil for March fell $14.50 to $981.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost $2.01 to $111.27/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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