MARKET WATCH: Economic indicators boost oil prices

Oil prices increased Mar. 26 with crude up 1.4% to its highest close in a month on the New York market, buoyed by improved US economic data and near-resolution of the Cyprus crisis. Natural gas climbed 2.8% with cooler weather.

“Brent performance, although less spectacular, was nevertheless good,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. The price spread between Brent and West Texas Intermediate ended the day near $13/bbl.

In Houston, analysts at Raymond James & Associates Inc. said, “The volatility of the oil markets again leaves us scratching our heads. Since Mar. 1, the WTI-Brent spread has narrowed from $20/bbl to $13/bbl. However, the story doesn’t end there as Light Louisiana Sweet crude (LLS) has built in a premium to Brent, keeping the Gulf Coast LLS-WTI spread at a higher $16/bbl. Much has been written about the WTI discount, but why the $3/bbl spread between LLS and Brent? More importantly, why is LLS actually at a premium to Brent (in contrast to our LLS discount thesis)?”

With “many moving parts impacting crude prices,” Raymond James analysts predicted “plenty of volatility in the coming months, with the bias towards wider spreads.”

As for the US economy, Ground said, “Durable goods orders for February climbed 5.7% month-to-month, much better than the 3.9% increase analysts were expecting. However, the headline is somewhat deceiving in that it was largely owing to a massive rebound (95.3%) in commercial aircraft orders, something that is unlikely to be repeated. In fact, excluding transportation, durable goods orders fell 0.5% in February, which is below expectations (0.6%) and worse than the previous month’s revised 2.9% increase.”

He said, “While the recovery in the US appears to be gaining traction, we remain concerned about the fiscal hurdles and the ultimate effect that this will have on economic activity and, consequently, oil demand, especially given growing domestic oil production and massive crude oil inventories.”

US inventories

The Energy Information Administration said Mar. 27 commercial US crude inventories jumped 3.3 million bbl to 385.9 million bbl in the week ended Mar. 22, outstripping the Wall Street consensus for a 1.3 million bbl increase. Gasoline dropped 1.6 million bbl to 221.2 million bbl, more than the expected 1 million bbl decrease. Both finished gasoline inventories and blending components were down. Distillate fuel inventories fell 4.5 million bbl to 115.3 million bbl, far more than the 900,000 bbl decline analysts expected.

Imports of crude into the US increased 841,000 b/d to 8.2 million b/d last week. In the 4 weeks through Mar. 22, US crude imports averaged 7.6 million b/d, down 1.2 million b/d from the comparable period in 2012. Gasoline imports last week averaged 505,000 b/d while distillate fuel imports averaged 223,000 b/d.

The input of crude into US refineries increased 364,000 b/d to 14.9 million b/d last week with units operating at 85.7% of capacity. Gasoline production increased to 8.9 million b/d, but fuel production decreased to 4.2 million b/d.

Energy prices

The May contract for benchmark US light, sweet crudes continued climbing, up $1.53 to $96.34/bbl Mar. 26 on the New York Mercantile Exchange. The June contract increased $1.52 to $96.61/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.53 to $96.34/bbl.

Heating oil for April delivery reclaimed 0.41¢ but closed essentially unchanged at a rounded $2.88/gal on NYMEX. Reformulated stock for oxygenate blending for the same month escalated 4.8¢ to $3.11/gal.

The April natural gas contract regained 11.1¢ to $3.98/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gave back more than its gain from the previous session, down 6.9¢ to $4/MMbtu.

In London, the May IPE contract for North Sea Brent increased $1.19 to $109.36/bbl. Gas oil for April advanced $1.25 to $902/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 38¢ to $105.86/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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