MARKET WATCH: Oil prices rebound while natural gas continues to rally

Oil prices rebound Feb. 5, taking back some of the losses from the previous session that was described as “worst day of the year” for crude futures on the New York market.

However, “lingering concerns” of capacity on the 500-mile Seaway Pipeline from Cushing, Okla., to the Texas Gulf Coast held the front-month crude contract to a 0.5% gain, said analysts in the Houston office of Raymond James & Associates Inc.

“Natural gas prices increased 3.3%, defying forecasts for super-normal East Coast temperatures next week,” they said.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “Oil markets received a kick from better-than-expected services sector activity readings.” The good news started with the Hong Kong and Shanghai Banking Corp. (HSBC) issuing its latest Purchasing Managers Index (PMI) for China, “which grew to 54 in January from 51.7 in the previous month,” Ground said. “Even the data out of Europe showed a marginal improvement, with the Euro-zone services PMI coming out at 48.6, still below the 50 threshold but better than December’s 47.8.”

Ground said, “Even more encouraging was the German services index, which showed particularly strong growth at 55.7 and crucially pushed further into expansionary territory. The US nonmanufacturing sector continued its expansion, coming in slightly better-than-expected (55.2 compared to 55).” A weaker dollar also contributed to solid gains in the oil market.

In the equity market, Raymond James analysts reported, “Needle-moving economic data was in short supply yesterday, but apparently investors were willing to take any excuse to get back into the game after the previous day's selloff.” The SIG Oil Exploration & Production Index followed oil prices higher, increasing 2.1%. However, Raymond James analysts reported, “Oil service stocks though were more resistive,” with the Oil Service Index still in decline, down 0.3%.

US inventories

The US Energy Information Administration said Feb 6 commercial US crude inventories increased 2.6 million bbl to 371.7 million bbl in the week ended Feb. 1, slightly below Wall Street’s consensus for a 2.7 million bbl gain. Gasoline stocks climbed 1.7 million bbl to 234 million bbl in the same period, surpassing analysts’ expectations of a 900,000 bbl increase. Finished gasoline inventories decreased while blending components increased last week. Distillate fuel inventories dropped 1 million bbl to 129.6 million bbl, a steeper decline than the projected 600,000 bbl decrease.

Imports of crude into the US were down 499,000 b/d to 7.6 million b/d last week. In the 4 weeks through Feb. 1 US crude imports averaged 7.8 million b/d, a decrease of 754,000 b/d from the comparable period in 2012. Gasoline imports last week averaged 693,000 b/d, and distillate fuel imports averaged 86,000 b/d.

Input of crude into US refineries declined 50,000 b/d to 14.4 million b/d last week with units operating at 84.2% of capacity. Gasoline production decreased to 8.8 million b/d while distillate fuel production increased to 4.5 million b/d.

Energy prices

The March contract for benchmark US light, sweet crudes took back 47¢ of its $1.60/bbl lost in the previous session to close at $96.64/bbl Feb. 5 on the New York Mercantile Exchange. The April contract regained 45¢ to $97.11/bbl. On the US spot market, West Texas Intermediate at Cushing was up 47¢ to match the front-month futures contract’s finish at $96.64/bbl.

Heating oil for March delivery escalated 3.73¢ to $3.19/gal on NYMEX. Reformulated stock for oxygenate blending for the same month recouped 2.59¢ to $3.04/bbl.

The March natural gas contract continued its rally, jumping 8.4¢ to $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., regained most of its previous loss, up 5¢ to $3.34/MMbtu.

In London, the March IPE contract for North Sea Brent rebound 92¢ to $116.52/bbl. Gas oil for February was up $6.50 to $1,010.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 31¢ to $112.68/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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