Sam Fletcher
Senior Writer
HOUSTON, Feb. 28 -- The front-month crude contract climbed to a record high above $102/bbl in early trading Feb. 27 on the New York market but then retreated after US officials reported larger-than-expected builds in crude and gasoline inventories.
The Energy Information Administration said commercial US inventories of crude increased for the seventh consecutive week, up 3.2 million bbl to 308.5 million bbl during the week ended Feb. 22. That surpassed Wall Street's expectations of a 2.4 million bbl build. Gasoline stocks jumped to their highest level in 14 years, up 2.3 million bbl to 232.6 million bbl vs. a market consensus of a 400,000 bbl increase. Distillate fuel inventories fell 2.5 million bbl to 120 million bbl during the same period, surpassing expectations of a 2 million bbl decline (OGJ Online, Feb. 27, 2008).
In other news, weakness of the US dollar vs. the British pound and other key currencies pushed gold to record highs in the futures market and kept crude futures from falling further. Worries persist that the US is sliding into a recession. "Yesterday the daily tug-of-war between the bulls and the bears on Wall Street ended in a virtual tie," said analysts in the Houston office of Raymond James & Associates Inc. "Both sides got data points that validated their positions, with the US Federal Reserve chairman warning that the economy could get worse, supporting the bears. On a bullish note, traders found hope in the news that Fannie Mae and Freddie Mac will commit additional money to purchase mortgage securities."
Olivier Jakob at Petromatrix, Zug, Switzerland, said the energy market now faces "a test to see if market participants are currently able to focus on fundamentals for more than a few hours." The front-month crude contract has gained $5/bbl since mid-February on the New York Mercantile Exchange, but the crack for the April gasoline contract "has lost the same amount and the backwardation continues to gently erode in crude oil," Jakob said. Current front-month contracts for petroleum products expire Feb. 29. "Expiry of the gasoline contract remains a pressure risk as its contango widens. The high gasoline stocks (and that is before ethanol stocks are even considered) and imports reported by [EIA] will be no supportive item. Crude oil stocks are also steadily rebuilding with imports on the 4-week average higher by 480,000 b/d from last year," he said.
"The overall US stocks have gone from a yearly deficit at the start of the year of 65 million bbl [down] to 20 million bbl last week. With the subsequent week last year showing a 16 million bbl draw, the overall yearly stock deficit should have mostly disappeared by the next report," Jakob said.
He said, "The recent focus has been on the weakness of the dollar index but in Nigeria the presidential election has been validated by the courts, exports of Forcados [crude] have been confirmed higher, and Royal Dutch Shell PLC announced [Feb. 27] that the repairs on the Bonny pipeline have been done. OPEC might decide to leave things unchanged next week, but until the next act of militancy sabotage, the flows from West Africa will increase. And this is before the start up of the 250,000 b/d Agbami field scheduled for the summer. It should be no surprise that Nigeria is not calling for a cut in OPEC production quotas."
Energy prices
The April contract for benchmark US sweet, light crudes peaked at a record $102.08/bbl in intraday trading Feb. 27 before closing at $99.64/bbl, down $1.24 for the day on NYMEX. The May contract lost $1.19 to $99.38/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.24 to $99.65/bl.
The March contract for reformulated blend stock for oxygenate blending (RBOB) dropped 7.28¢ to $2.48/gal on NYMEX. Heating oil for the same month declined 4.39¢ to $2.77/gal.
The March natural gas contract fell 27.6¢ to $8.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 6¢ to $9.20/MMbtu. EIA said Feb. 28 that 151 bcf of natural gas was withdrawn from US underground storage in the week ended Feb. 22. US gas storage now stands at 1.6 tcf, down 133 bcf less than a year ago but 87 bcf above the 5-year average.
In London, the April IPE contract for North Sea Brent crude lost $1.20 to $98.27/bbl. Gas oil for March dropped $5 to $893.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased by $1.11 to $95.20/bbl on Feb. 27.
Contact Sam Fletcher at [email protected].
