Sam Fletcher
Senior Writer
HOUSTON, Jan. 29 -- The front-month crude price increased slightly Jan. 28 after experiencing in the previous trading session the biggest 1-day loss in 3 weeks on the New York market.
Prices rallied following a mixed Energy Information Administration report on US inventories that included an unexpected decline in gasoline inventories. "Crude storage continued to grow more than expected, driven by last week's broad West Texas Intermediate price contango," said analysts at Pritchard Capital Partners LLC, New Orleans. "The dramatic narrowing of the spread in the last week or so should begin to slow the rate of inventory build."
The EIA said commercial US inventories of crude jumped by 6.2 million bbl to 338.2 million bbl in the week ended Jan. 23, the highest level since August 2007. Gasoline stocks decreased 100,000 bbl to 219.9 million bbl. Distillate fuel inventories dropped 1 million bbl to 144 million bbl. Wall Street was anticipating increases of 2.8 million bbl in crude and 1.8 million bbl in gasoline. The consensus was for a 1.1 million bbl draw on distillate fuels (OGJ Online, Jan. 28, 2009).
In Houston, analysts at Raymond James & Associates Inc. said, "With little to no help from the commodities, [corporate] energy stocks moved higher yesterday with the broader market. However, don't expect a repeat performance today with both the Dow Jones Industrial Average and the S&P 500 down premarket."
They reported early trading Jan. 29 on the New York crude market gave away all gains from the previous session. "With nearly zero positive data points on the demand side, crude has traded within a band for the past 2 months. Natural gas touched its seasonal low this morning, and we expect this trend of new lows to continue through the spring," Raymond James analysts said.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Crude oil stocks remain ample, but 20 million bbl will go to the Strategic Petroleum Reserve between now and June. Cushing, Okla., stocks made new highs and will probably not be helped by the disruptions to the Osage Pipeline between Cushing and Kansas." The 135,000 b/d oil pipeline connecting the Cushing delivery point with Kansas refineries resumed operation Jan. 28 after a leak detected Jan. 25 was fixed. The pipeline transports mostly West Texas Sour.
Analysts at EnVantage Inc., a Houston advisory and energy investment firm, said, "Until refiners can substantially increase crude runs, there will be pressure to lower crude import levels because of the regional surpluses at Cushing and the large storage overhang that is building nationwide. It is highly probable that the March WTI contract will follow the same track as the February contact and go back into the $30/bbl range, but we continue to see WTI prices trading between $35/bbl as a bottom and $50/bbl as a ceiling."
Meanwhile, they said, although negotiations continue the United Steelworkers Union may call a strike that could affect almost two thirds, or 11.6 million b/d, of the country's refining capacity. Refiners and union executives are negotiating a new labor contract for 30,000 workers; the current contract expires after midnight Jan. 31. "Several refiners have stated they are prepared to run their refineries in the event of a strike. However, BP PLC said yesterday it may shut four US refineries that can process 1.3 million b/d of oil if the Steelworkers Union goes on strike," said EnVantage analysts.
They noted US refiners are running at 80% of capacity, processing 14.1 million b/d of oil—"the lowest crude input for late January in 9 years."
In other news, after a 2-day meeting, the Federal Open Market Committee said it plans to keep its interest rate target in a range of zero to 0.25%, "for some time." Moreover, the Federal Reserve will purchase longer term Treasury securities if needed to improve conditions in private credit markets.
The US Department of Labor reported 4.78 million US residents—the highest number on record back to 1967—claimed unemployment insurance through the week ending Jan. 17. That was up 159,000 from the previous week and exceeded economists' expectations of 4.65 million. An additional 1.7 million residents receive benefits under an unemployment compensation program that Congress extended last year.
Energy prices
The March contract for benchmark US sweet, light crudes increased 58¢ to $42.16/bbl Jan. 28 on the New York Mercantile Exchange. The April contact advanced by $1.17 to $46.07/bbl. On the US spot market, WTI at Cushing was up 58¢ to $42.16, again tracking the front-month futures price. Heating oil for February increased 4.7¢ to $1.12/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) gained 7.5¢ to $1.18/gal.
The expiring February contract for natural gas dropped 2.7¢ to $4.48/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 3.5¢ to $4.80/MMbtu. The EIA reported the withdrawal of 186 bcf of natural gas from US underground storage in the week ended Jan. 23. That reduced working gas in storage to 2.4 tcf, which is 34 bcf more than the same period a year ago and 29 bcf above the 5-year average
In London, the March IPE contract for North Sea Brent crude gained $1.17 to $44.90/bbl. The February gas oil contract continued to fluctuate, climbing $8.75 to $438.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes inched up 3¢ to $40.71/bbl on Jan. 28.
Contact Sam Fletcher at [email protected].
