Sam Fletcher
Senior Writer
Traders pushed crude prices well above $100/bbl in late February, turning from equities to commodities as a haven for investments as fear of a US recession sent the US dollar plummeting to record lows against the euro and other key currencies.
On Feb. 29, crude touched a record high of $103.05/bbl in overnight electronic trading before finishing the week at $101.84/bbl, down from a record closing of $102.59/bbl Feb. 28 on the New York Mercantile Exchange. Despite an end-of-the-week decline in most energy prices, Olivier Jakob at Petromatrix, Zug, Switzerland, noted West Texas Intermediate increased a total $3.03/bbl from the start of the week, marking the fourth consecutive week for gains of $3-4/bbl. North Sea Brent gained about the same, up $3.09/bbl for the week. The April contract for heating oil "managed to more or less follow with an increase of $2.71/bbl, but RBOB gasoline was stalling and made a loss of 27¢/bbl," Jakob said. Natural gas for April increased 1.9%, and WTI was up $40.20/bbl from a year ago," he said.
Dollar declines
On Feb. 28, the dollar was at its lowest exchange rate against the euro since the European currency began trading in January 1999. The value of the US dollar had dropped 40% against the euro and 20% against a basket of other currencies over the last 6 years, sparking worries that it eventually could lose its place among world currencies.
"The commodity markets are clearly under a dollar overdrive, making the call of the top [price] a difficult task," Jakob said Feb. 28. "We do not know where the bottom is for the dollar index, but we know that the fall in the gasoline crack cannot continue at the current pace. We will very soon come to a point where complex refiners will either move back to voluntarily cutting runs or keep their systems on maintenance for a longer period, which in turn will accelerate the building of crude oil stocks as the backwardation on crude oil is relatively shallow."
US inventories
The front-month crude contract climbed to an intraday record 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).
"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," Jakob said. "Overall US stocks have gone from a yearly deficit at the start of the year of 65 million bbl [down] to 20 million bbl [through Feb. 22]. 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 at the time the world petroleum markets faced "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," he said.
Paul Horsnell at Barclays Capital Inc., London, said, "The global gasoline market does look extremely weak at the moment, primarily because of how very little of the incremental demand barrel is gasoline. However, the reverse of that is that global distillate markets look like raging bull markets, given the extent to which the incremental global demand barrel is dominated by distillates. [Organization for Economic Cooperation and Development] demand looks weak (as it has been for 3 years), but non-OECD demand looks robust, and Chinese demand is improving."
Meanwhile, Ecuador declared force majeure Feb. 29 on oil exports after a mudslide ruptured 80 m of the 390,000 b/d Trans-Ecuadorian Oil Pipeline System. Officials said it would take 3-6 days to repair the pipeline.
(Online Mar. 3, 2008; author's e-mail: [email protected])