Sam Fletcher
Senior Writer
HOUSTON, Feb. 21 -- Crude prices continued to explore new highs above $100/bbl Feb. 20 on US markets despite US government reports indicating a troubled economy.
The US Department of Labor said inflation showed no sign of abating in January because of an increase of underlying core prices indicating that inflation is seeping into the broad economy. US consumer prices were up a seasonally adjusted 0.4% last month. Excluding food and energy prices, the core Consumer Price Index rose 0.3% in January—the biggest gain since June 2006.
Meanwhile, the Federal Reserve said it's willing to do more to help boost the economy but also warned that inflation could require swift interest rate hikes when economic growth resumes.
In other news, Alon USA Energy Inc. in Dallas said there may be a partial restart of its 70,000 b/d sour crude refinery in Big Spring, Tex., following a Feb. 18 explosion and fire near the propylene splitter unit that destroyed a propylene recovery unit and damaged alkylation and gas concentration units. The company is supplying customers with on-hand supplies while developing contingency supply plans for later (OGJ Online, Feb. 20, 2008).
"Another day, another record-breaking oil price—did someone forget to tell the crude market that the US is supposed to be going into a recession?" asked analysts in the Houston office of Raymond James & Associates Inc. However, their follow-up question is: "Will the oil bulls be able to shake off another…build in US inventories?"
US inventories
The Energy Information Administration said commercial US crude inventories rose by 4.2 million bbl to 305.3 million bbl in the week ended Feb. 15, up from a Wall Street consensus of a 2.7 million bbl increase. Gasoline inventories increased 1.1 million bbl to 230.3 million bbl in the same week, vs. Wall Street expectations of a 500,000 bbl increase. Distillate fuel inventories fell 4.5 million bbl to 122.5 million bbl, more than the expected decline of 1.7 million bbl. Propane and propylene inventories decreased by 2.8 million bbl to 34 million bbl.
Imports of crude into the US increased by 365,000 b/d to 10.1 million b/d. The input of crude into US refineries fell, however, down 97,000 b/d to 14.5 million b/d with refineries operating at 83.5% of capacity last week. Gasoline production declined to 8.8 million b/d, with distillate fuel production down to 4 million b/d.
Energy prices
The expiring March contract for benchmark US sweet, light crudes hit a new high of $101.32/bbl in intraday trading Feb. 20 before closing at a record $100.74/bbl, up 73¢ for the day on the New York Mercantile Exchange. The April contract closed unchanged at $99.70/bbl after fluctuating between $97.99-100.86/bbl through that session.
The new front-month April contract's "ability to rebound from the day's low was a demonstration of its remaining intrinsic strength," said Olivier Jakob at Petromatrix, Zug, Switzerland. "As the market fails to pinpoint the key driver of the current rally, the recurring explanation that is proposed is of 'massive investment flows,'" he said. However, Jakob added, "The open interest on crude oil is not yet showing any significant growth. The West Texas Intermediate open interest is under the negative influence of the [March contract's] expiry but even [North Sea] Brent that has already gone through the [March] expiry process had only a marginal growth of open interest during the mother of all rallies. A commodity making new historic highs with no growth of open interest is never a good sign as either the new length coming into the market is being used by the old length that initiated the move to take profit or is a sign that short covering has a greater role than believed."
On the US spot market, WTI at Cushing, Okla., was up 74¢ to a record $100.75/bbl. Heating oil for March delivery lost 0.68¢ to $2.75/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) dropped 1.79¢ to $2.59/gal.
The March natural gas contract price fell 1.2¢ to $8.97/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., escalated by 11¢ to $9.02/MMbtu.
In London, the April IPE contract for North Sea Brent lost 14¢ to $98.42/bbl. The March contract for gas oil continued to increase, up $5.75 to $885/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes gained $1.58 to $94.22/bbl.
Contact Sam Fletcher at [email protected].
