MARKET WATCH: Crude makes moderate recovery; gas continues decline

The front-month crude contract on May 30 recovered a portion of its loss from the previous session, up 0.5% in the New York market despite a bearish government inventory report of gasoline demand climbing to its highest level since August.

“On the other hand, natural gas plunged 3.8% as this week's injection data was notably looser than was expected,” said analysts in the Houston office of Raymond James & Associates Inc. Standard & Poor’s 500 Index increased 0.4% on weaker-than-expected economic growth data and 354,000 new claims for US unemployment benefits last week, 10,000 more than the previous week. On May 11, the latest data available, some 4.6 million US residents were receiving unemployment benefits.

“As strange as it may seem, the weak data lessened fears that the Federal Reserve would begin tapering the level of quantitative easing,” Raymond James analysts reported.

To no one’s surprise, ministers of the Organization of the Petroleum Exporting Countries voted at their May 31 meeting in Vienna to make no changes in their existing production target of 30 million b/d. They said the “relative steadiness” of crude prices so far this year indicates the market is adequately supplied. Periodic price fluctuations are the result geopolitical tensions, they said. While world economic growth is projected to reach 3.2% this year, up from 3% in 2012, the global economy is still at risk, especially among members of the Organization for Economic Cooperation and Development, the ministers reported.

OPEC ministers expect world oil demand to rise to 89.7 million b/d this year from 88.9 million b/d in 2012, driven almost entirely by non-OECD demand. Non-OPEC supply is projected to grow 1 million b/d, and OECD stock levels should remain comfortable, they said.

US inventories

The Energy Information Administration said commercial US crude inventories climbed 3 million bbl to 397.6 million bbl in the week ended May 24, the highest level since EIA began collecting data in 1978. Gasoline inventories dropped 1.5 million bbl to 219.2 million bbl in the same period. Finished gasoline inventories decreased while blending components increased slightly. Distillate fuel inventories rose 1.9 million bbl to 120.7 million bbl last week.

EIA also reported the injection of 88 bcf of natural gas into US underground storage last week, more than Wall Street’s consensus of 86 bcf. That raised working gas in storage to 2.141 tcf, down 664 bcf from the comparable period a year ago and 88 bcf below the 5-year average (OGJ Online, May 30, 2013).

“For the second week in a row, ‘Big Three’ inventories [of crude, gasoline, and diesel fuel] had a large build in contrast to a sizeable draw that had been expected. The delta was a result of crude and distillate inventories building much more than expected [and] more than offsetting a larger-than-expected draw in gasoline,” Raymond James analysts said “With driving season approaching, the week tallied a total build of 5 million bbl including the additions to jet fuel, residual fuel, and unfinished oils. The large build in crude came despite lower crude imports (down 300,000 b/d for the week), as total petroleum demand fell 3% and refinery utilization slipped to 86.4% (down1%).” Gasoline inventories declined, however, as demand picked up by 1.9%, but gasoline demand remains down 4% from a year ago.

As for last week’s underground gas storage, they said, “Excluding weather-related demand, there was 3.7 bcfd of additional natural gas added to storage compared [with] last year, and we have averaged 4.6 bcfd looser over the past 4 weeks.”

Energy prices

The July contract for benchmark US light, sweet crudes recovered 48¢ to $93.61/bbl May 30 on the New York Mercantile Exchange. The August contract regained 45¢ to $93.80/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month crude futures contract, up 48¢ to $93.61/bbl.

Heating oil for July delivery declined 2.06¢ to $2.84/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 0.94¢ to $2.81/gal.

The new front-month July natural gas contract fell 16.1¢ to $4.02/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $4.13/MMbtu.

In London, the July IPE contract for North Sea Brent continued retreating, down 24¢ to $102.19/bbl. Gas oil for June dropped $6.50 to $858.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes lost 77¢ to $99.77/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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