MARKET WATCH: Crude price flat in mixed market

April 14, 2008
Crude prices were essentially flat Apr. 11 but managed a weekly gain in the New York market as the International Energy Agency in Paris again reduced its estimate of global crude demand for 2008.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 14 -- Crude prices were essentially flat Apr. 11 but managed a weekly gain in the New York market as the International Energy Agency in Paris again reduced its estimate of global crude demand for 2008.

IEA trimmed its previous estimate by 310,000 b/d to 87.2 million b/d as a result of the downgrading of global gross domestic product prospects by the United Nation's International Monetary Fund, coupled with "a change in former Soviet Union methodology and baseline data revisions," officials said. On the other hand, IEA increased its estimate of 2007 demand, up 140,000 b/d to 86 million b/d. "As a result of these divergent shifts, demand growth in 2008 is now expected at almost 1.3 million b/d, or 1.5% over 2007," IEA reported. Its estimate of global oil supply fell by 100,000 b/d in March to 87.3 million b/d, due to reduced supplies from the Organization of Petroleum Exporting Countries, the North Sea, and non-OPEC Africa (OGJ Online, Apr. 11, 2008).

In other news, the US dollar fell against most major currencies as finance ministers of the Group of Seven leading nations and central bankers met in Washington, DC. During that meeting, Joaquin Almunia, the European Union's economic and financial affairs commissioner, said the euro is overvalued in foreign exchange markets. When that meeting ended Apr. 13, however, the world's top economic officials issued no joint financial plan to reassure markets.

West Texas Intermediate gained $3.91/bbl during the calendar week, set a new record high, but fell 7¢ short of registering the highest weekly close. Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Brent gains were at par at [an increase of] $3.85/bbl. Heating oil made much stronger gains, [up] $8.41/bbl while reformulated blend stock for oxygenate blending (RBOB) was adding only $2.12/bbl. Natural gas was up 6.2%," he said.

Jakob said, "WTI continues to be tightly correlated to the movements of the dollar Index. However, while in the previous week WTI had spent the week slightly below the correlation, this last week it was slightly above. The main reason why the correlation is so strong is that is has become a self-fulfilling trade, with very few volunteers to trade against it until it is proven broken. Gold, which had also been strongly correlated to the dollar, has not followed the correlation as strongly as oil, and the gold-to-crude ratio continues to come off. For the oil-to-dollar correlation to be broken would require a set of fundamental numbers bearish enough to be a no-brainer."

Meanwhile, Shell Oil Co.'s 667-mile Capline oil pipeline was shut down over the weekend as workers tried to repair a leak. That pipeline transports 1 million b/d of crude to the Midwest from the Gulf of Mexico. No timetable for a return to service has been announced, said analysts Apr. 14 in the Houston office of Raymond James & Associates Inc. They also said natural gas prices should remain near current levels if the year-over-year storage deficit hovers above 300 bcf "like we expect until later this summer."

Energy prices
The May contract for benchmark US light, sweet crudes increased 3¢ to $110.14/bbl Apr. 11 on the New York Mercantile Exchange. The June contract climbed 14¢ to $109.71/bbl. On the US spot market, WTI at Cushing, Okla., was up 3¢ to $110.15/bbl. Heating oil for May delivery inched up by 0.35¢ to $3.20/gal on NYMEX. The May RBOB contract gained 1.52¢ to $2.81/gal.

The May natural gas contract dropped 19.7¢ to $9.90/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 23.5¢ to $9.97/MMbtu

In London, the May IPE contract for North Sea Brent crude increased 55¢ to $108.75/bbl. However, gas oil for May fell $18.75 to $1,013/tonne.

The average price for OPEC's basket of 13 reference crudes dipped by 7¢ to $103.67/bbl on Apr. 11. So far this year, the OPEC basket price has averaged $93.47/bbl.

Contact Sam Fletcher at [email protected].