MARKET WATCH: Oil, gas prices climb in volatile markets

Markets were down in early trading Mar. 27, but front-month crude managed a 0.2% increase by the time floor transactions ended in New York. Natural gas continued its cold weather rally, up 2.5% in the session.

“Oil markets enjoyed a 4th day of upside, although understandably momentum did slow considerably,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. Loss of upward momentum could cause a near-term technical correction, he said.

Ground noted, “Brent for the first time in a week posted a stronger performance (in dollar terms) than West Texas Intermediate.” The Brent-WTI price spread widened “marginally” to $13.11/bbl.

US inventories

The Energy Information Administration reported Mar. 28 the withdrawal of 95 bcf of natural gas from US underground storage in the week ended Mar. 22, more than Wall Street’s consensus for a draw of 90 bcf. That left 1.781 tcf of working gas in storage, down 624 bcf from the comparable period a year ago but 61 bcf above the 5-year average.

EIA earlier said commercial US crude inventories jumped 3.3 million bbl to 385.9 million bbl last week, 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 (OGJ Online, Mar. 27, 2013).

The overall draw of 2.9 million bbl from “Big Three” inventories was larger than analysts’ estimates of a 600,000 bbl decrease as the increase in crude was offset by a massive drop in distillate fuel stocks. “Large builds in jet fuel and unfinished oil stocks partially offset the overall ‘Big Three’ draw. Cushing, Okla., inventories rose 400,000 bbl last week (after 2 weeks of declines) to 49.5 million bbl and are still up 9.9 million bbl [for] this time last year,” said analysts in the Houston office of Raymond James & Associates Inc. “The inventory build implies that the narrowing of the Brent-WTI spread from over $16/bbl on Mar. 15 to $13/bbl today is not reflective of improved fundamentals at Cushing and may be more reflective of weakness in Brent.”

Ground said, “The market took heart from a pick-up in US refinery utilization rates (2.2% increase), raising expectations of a refinery ramp-up in preparation of the US driving season. Further bolstering these expectations were the strong drawdowns in product stockpiles.”

Nevertheless, he said, “While there is room for increased distillate production (stockpiles are currently extremely low), gasoline inventories are largely in line with their seasonal 5-year average. In addition, Bakken light tight oil and Canadian oil sands production continue to escalate, especially as we move into the northern hemisphere spring (as a number of wells have been idled over the winter), which could keep upward momentum in crude oil inventories in place.”

Energy prices

The May contract for benchmark US light, sweet crudes traded at $95.51-96.87/bbl Mar. 27 before closing at $96.58/bbl, up 24¢ for the day on the New York Mercantile Exchange. The June contract advanced 23¢ to $96.84/bbl. On the US spot market, WTI at Cushing was up 24¢ to $96.58/bbl.

Heating oil for April delivery increased 3.41¢ to $2.92/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.49¢ to $3.12/gal.

The new front-month May natural gas contract climbed 7.7¢ to $4.07/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 6.5¢ to $4.06/MMbtu.

In London, the May IPE contract for North Sea Brent gained 33¢ to $109.69/bbl. Gas oil for April escalated $8.75 to $910.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 93¢ to $106.79/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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