MARKET WATCH: Ample supply, weakened economy roll back energy prices

Energy prices plunged Apr. 3 with both West Texas Intermediate and North Sea Brent registering their biggest losses in dollar terms this year on a bigger-than-expected increase in crude inventories and weaker-than-expected economic indicators.

“The spread between the two benchmark [crudes] ended the day at $12.66/bbl, a 9-month low,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

A weaker-than-expected Institute for Supply Management reading for the US nonmanufacturing sector “compounded fears introduced by the manufacturing counterpart earlier this week that perhaps the US economy was not growing as strongly as previously,” Ground said. “ISM nonmanufacturing came in at 54.4 for March (consensus: 55.5), still above the contraction-expansion threshold of 50 but indicating a slowdown from the 56 recorded in February. Earlier in the week, the ISM manufacturing number for March came out well below market expectations (51.3 compared [with] 54), and also significantly below February’s reading of 54.2” (OGJ Online, Apr. 1, 2013).

He said, “We are not surprised to see an easing of the growth momentum that we saw in the first 2 months of the year. Our base case remains that although an improvement on last year, the US will experience fairly tepid growth in 2013.”

On Apr. 4, the US Department of Labor reported new applications for unemployment benefits increased by 28,000 to a seasonally adjusted 385,000. It was the third consecutive week of increased applications and the highest level since late November. Labor officials said the figures may have been affected by the Easter holiday, which varies annually making it difficult to adjust for school closings and other seasonal factors. Analysts speculate the rise indicates increased layoffs because of steep cuts in government spending.

Some 5.3 million people collected unemployment benefits in the week ended Mar. 16, the latest data available.

North Korea continues to generate political tension with its missile threats. However, analysts in the Houston office of Raymond James & Associates Inc. said, “Markets have yet to panic about the unrest, continuing to focus on global economic recovery instead.”

US inventories

The Energy Information Administration reported the withdrawal of 94 bcf of natural gas from US underground storage in the week ended Mar. 29, exceeding Wall Street’s consensus for a 92 bcf out-take. That left 1.687 tcf of working gas in storage, down 779 bcf from year-ago level and 37 bcf below the 5-year average.

EIA earlier said commercial US crude inventories increased by 2.7 million bbl to 388.6 million bbl last week, surpassing the Wall Street consensus for a gain of 2.1 million bbl. Gasoline stocks declined 600,000 bbl to 220.7 million bbl, short of the 1 million bbl draw analysts expected. Both finished gasoline and blending components were down. Distillate fuel inventories fell 2.3 million bbl to 113 million bbl, exceeding the outlook for a 1.1 million bbl drop (OGJ Online, Apr. 3, 2013).

The overall draw from the "Big Three" inventories of crude, gasoline, and distillate fuels totaled 100,000 bbl, which was “mild but higher than expected—analysts were predicting that inventories would stay flat,” said Raymond James officials. Nevertheless, they said, “The unexpected increase in crude stocks is notable, given that crude imports fell slightly week-to-week and refinery utilization remains at the top of its 5-year range. Total petroleum demand climbed another 0.5% after a big jump the previous week.”

They noted crude inventories at Cushing, Okla., declined 200,000 bbl but remained 9.9 million bbl above the year-ago level and well above seasonal norms.

Energy prices

The May contract for benchmark US sweet, light crudes fell $2.74 to $94.45/bbl Apr. 3 on the New York Mercantile Exchange. The June contract dropped $2.73 to $94.77/bbl. On the US spot market, WTI at Cushing also was down $2.74 to $94.45/bbl.

Heating oil for May delivery lost 8.54¢ to $3/gal on NYMEX. Reformulated stock for oxygenate blending for the same month plunged 12.68¢ to $2.91/gal.

The May natural gas contract decreased 6.9¢ to $3.90/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 4¢ to $4.01/MMbtu.

In London, the May IPE contract for North Sea Brent fell $3.58 to $107.11/bbl—“its lowest close since mid-December,” Ground reported. Gas oil for April was down $16.75 to $912.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $1.36 to $106.80/bbl, wiping out its gain from the previous session.

Contact Sam Fletcher at samf@ogjonline.com.

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