MARKET WATCH: Economic gloom over Cyprus brought down oil prices

The front-month crude contract fell 1.8% Mar. 19 in the New York futures market as the Cyprus government’s rejected an unpopular proposal for a 10% tax on individual bank deposits above €20,000 to bail out its economy.

“For oil markets, in fact for most commodities other than gold, the rejection of the proposed bank levy in Cyprus prompted a sell-off,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “West Texas Intermediate had its worst day in months,” he said. “Brent posted an equally dismal performance.”

Cypriot officials are scrambling to find another way to reduce sovereign debt, including an appeal to Russia for financial aid. The European Central Bank has pledged to provide liquidity to Cypriot banks, which have remained closed so far this week to avoid runs by depositors anxious to retrieve their savings.

In the equity market, energy stocks led a decline with the Oil Service Index dropping 2% on the session and the SIG Oil Exploration & Production Index down 1.8%. News of the Cypriot government’s rejection of the deposit tax proposal came late in the session. “The markets gained positive momentum into the close, but not enough to overcome early losses,” said analysts in the Houston office of Raymond James & Associates Inc. “Standard & Poor’s 500 index slipped 0.2%, its third consecutive day of losses.”

However, they reported natural gas increased 2.2% on expectations for sustainably cooler weather. Both crude and gas prices were up in early trading Mar. 20 ahead of the end of a 2-day meeting of Federal Reserve officials. They are widely expected to keep interest rates low and to continue to stimulate the economy, which could increase demand for energy.

Cyprus’s economy is not so large that it will “knock everyone else off kilter,” nor is there fear “that the shoddy treatment of bank depositors will spark deposit flight elsewhere,” Ground said. “There is a real danger that the negative psychology surrounding Cyprus kills off the fledgling recovery that we have started to see in Euro-zone business confidence.”

US inventories

The Energy Information Administration said Mar. 20 commercial US crude inventories dropped 1.3 million bbl to 382.7 million bbl in the week ended Mar. 15, short of Wall Street’s consensus for a 2 million bbl decline. However, crude stocks remain well above average for this time of year. Gasoline inventories fell 1.5 million bbl to 222.8 million bbl in the same period. Analysts also expected a 2 million bbl decrease in that category. Finished gasoline stocks declined while blending components increased. Distillate fuel inventories were down 700,000 bbl to 119.8 million bbl last week, short of the expected 1 million bbl draw.

Imports of crude into the US decreased by 218,000 b/d to 7.3 million b/d last week. In the 4 weeks through Mar. 15, crude imports averaged 7.5 million b/d, down 218,000 from the comparable period in 2012. Gasoline imports averaged 387,000 b/d last week and distillate fuel imports averaged 66,000 b/d.

The input of crude into US refineries increased 520,000 b/d to 14.5 million b/d last week with units operating at 83.5% of capacity. Gasoline production decreased to 8.6 million b/d, but distillate fuel production increased to 4.3 million b/d.

Energy prices

The April contract for benchmark US light, sweet crudes dropped $1.58 to $92.16/bbl Mar. 19 on the New York Mercantile Exchange. The May contract lost $1.59 to $92.52/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.58 to $92.16/bbl.

Heating oil for April delivery declined 6.26¢ to $2.86/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 8.38¢ to $3.05/gal.

The [month] natural gas contract escalated 8.7¢ $3.97/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., retreated 2.8¢ to $3.95/MMbtu.

In London, the May IPE contract for North Sea Brent fell $2.06 to $107.45/bbl. Gas oil for April dropped $13 to $900/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 16¢ to $106.52/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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