Sam Fletcher
OGJ Senior Writer
HOUSTON, May 5 -- Equities and energy commodities surged May 4 with crude and natural gas prices continuing to climb amid signs of a rebound in the world economy that could spur energy demand.
The Credit Lyonnais Securities Asia's China Purchasing Managers Index (PMI), a key indicator of the world's third-largest economy, spiked to a seasonally adjusted 50.1 in April from 44.8 the previous month, marking its first expansion in 9 months.
In the US, construction spending unexpectedly rose in March for the first time in 6 months. Pending US home sales jumped 3.2% in March, on top of a 2% gain in February.
Natural gas futures prices increased for a second day on the New York market, up 5% "on speculation that industrial demand will begin to recover as the US economy emerges from a recession," said analysts at Pritchard Capital Partners LLC, New Orleans. The front-month crude contract climbed more than 2% to the "highest settlement since Nov. 24." However, Pritchard Capital Partners said both crude and gas prices were flat in premarket trading May 5.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "A better than expected PMI in China, a better than expected home pending sales in the US, and equities made a major rally that has brought the Standard & Poor's 500 [an index of the 500 largest US companies] to the unchanged number on a year-to-date basis. Combine this with a dollar index that falls below 84.000, and it would have been hard not to see some support coming into crude oil" on May 4. If equities are able to hold onto their gains, he said, "The risk is now to see some of the passive buy orders come into the commodity indices."
At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts reported "a growing consensus that $50/bbl is the increasingly firm floor for [crude] prices and we can expect them to rise gradually from now on. A big poll of 32 analysts published this week produced a consensus average US oil price for 2009 of $51/bbl; the lowest estimate was $40/bbl and the highest was $60/bbl. More interesting than the estimates themselves is the fact that the consensus price is higher than the last time the poll was taken."
China's oil demand increased by 500,000 b/d in 2008 "as the world as a whole used 100,000 b/d less oil." KBC analysts expect Chinese oil demand to be flat this year. "But we might yet revise this gloomy 2009 number up because there are increasing signs of life in the Chinese economy. Goldman Sachs raised their forecast for Chinese gross domestic product growth this year from 6% to 8% and next year's forecast from 9% to 11%. A survey of Chinese consumers in three key inland cities (not as highly dependent on exports as their coastal counterparts) showed consumer spending growing at close to 20% on an annual basis."
They said, "For China as a whole, the volume of bank loans grew by nearly 30% in the first quarter and March was a record month for car sales. It looks as if China's stimulus packages are working, in stark contrast to the still miserable outlook for the western economies."
In the first quarter of this year, China's imports of crude (3.68 million b/d) as reported by the National Development and Reform Commission were 400,000 b/d higher than the figure reported by the customs department. KBC analysts said, "Apparently, the publicly reported customs data deliberately understates current crude oil import levels, apparently in effort to obscure the real strength of the market so as to try to keep prices as low as possible. This is a bit bizarre, but it does emphasize one of the big problems in fully understanding the world oil outlook. We know that China is a big, growing market, but we can't be sure how big. What is for sure is that China's Strategic Petroleum Reserve was topped off in March and now holds 105 million bbl (compared with 717 million bbl in the US). Private companies are being encouraged to build up their own stocks of crude and products. Allied to, hopefully, an improving economy, this should provide a boost to demand as the year progresses."
Energy prices
The June contract for benchmark US sweet, light crudes climbed $1.27 to $54.47/bbl May 4 on the New York Mercantile Exchange, with West Texas Intermediate at Cushing, Okla., following along with the same increase to the same price on the US spot market. The July crude contract advanced $1.64 to $56.18/bbl on NYMEX. Heating oil for June increased 4.61¢ to $1.43/gal. Reformulated blend stock for oxygenate blending (RBOB) for the same month gained 6.86¢ to $1.59/gal.
The June natural gas contract jumped 17.9¢ to $3.73/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 14¢ to $3.46/MMbtu.
In London, the June IPE contract for North Sea Brent crude was up $1.73 to $54.58/bbl. Gas oil for May escalated $12 to $449.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.70 to $52.11/bbl on May 4.
Contact Sam Fletcher at [email protected].
