Sam Fletcher
OGJ Senior Writer
HOUSTON, Mar. 2 -- March trading came in like a lion with crude and petroleum product prices escalating Mar. 1 far above their losses in the final February session as civil strife increased in Libya, Oman, Iraq, and Iran.
The front-month crude contract gained 2.7% in the New York market, and equity stocks fell with the Dow Jones Industrial Average down 1.4% amid fears rising oil prices will derail the economic recovery.
“Oil surged again on the tensions in the Middle East and North Africa (MENA) region. In addition, the US oil inventory draw and strong manufacturing data lent support to the oil market,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “The term structures for West Texas Intermediate and North Sea Brent also strengthened as further buying came into the front-end of the curve.”
Middle East conflicts
Because civil protests are relatively rare in many Middle Eastern countries, they are difficult to analyze, said Olivier Jakob at Petromatrix, Zug, Switzerland. “If the protests in Oman should not be a big threat, the unrest in Yemen is difficult to assess,” he said. “Iran had a few canisters of tear gas and some beatings yesterday. The [Iranian] protests of 2009 did not materialize in supply disruptions, but it is also difficult to say that the current protests cannot grow bigger than in 2009.”
Moreover, he said, “We still have the fear of Bahrain and its extrapolation to Saudi Arabia. It only took rumors of Saudi tanks penetrating into Bahrain to propel prices higher yesterday in a market that currently lives and dies by the rumor.”
Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Rumors about Saudi tanks entering Bahrain had the market spooked earlier in the day, and the reports that Iran imprisoned the main opposition leaders in the county increased the market anxiety further. Instead of contracting, the turmoil in the Middle East seems to be spreading further, adding to the bullish pressures.”
In Libya, the clash between rebels and the army escalated, while the US warned that country could face a protracted civil war. “Protests in Oman and Bahrain continue. More importantly, concerns have also been raised about the stability of Saudi Arabia, as the country’s Tadawul All Share Index dropped by 6.8% yesterday,” Zhang reported.
The latest sanctions imposed on Libya confuse the oil market, he said. “It was reported yesterday that a cargo of Libya crude was sitting off the coast of Texas and Louisiana and was unable to discharge due to questions about US sanctions against Libya. We don’t expect this to be resolved over the next few days,” said Zhang.
Jakob said, “While the protests, fights, and rumors will remain volatile, we do believe that we are starting to enter the demand destruction process. In the financial markets, the equities have started to turn from a very positive to a very negative correlation to oil prices. The oil sector has been a large contributor to the rebound in the stock market since 2009, and if there is some logic to see the consumer sectors being capped by the current rise in oil prices, we are starting to enter a phase where shares of oil producing companies are moving lower as oil prices move higher.”
He again noted, “[Federal Reserve Chairman] Ben Bernanke might not be worried about oil prices, but the combination of rising gasoline prices and falling stock markets would be a strong negative to consumer confidence. It is impossible for all asset managers to be fully hedged against the doomsday scenario of a breakdown in Saudi Arabia or Iran, and that could lead to an acceleration of risk reduction as stocks are basically back to their 2007-2008 peaks while commodity prices continue to climb to historical highs.”
Natural gas
In Houston, analysts with Raymond James & Associates Inc. said, “Despite forecasts for colder weather, gas gave back [on Mar. 1] most of its gains following a strong short-covering and Fibonacci retracement rally that pushed prices above $4/Mcf” in the last two sessions. “Gas fell 4% and back below $4/Mcf,” they reported. The Fibonacci analysis holds that prices rise or fall by specific percentages after reaching a high or low. It originated with Leonardo Fibonacci, a 13th century mathematician whose work on the relationship of mathematics and nature has been applied in physics, astronomy, engineering, and marketing.
Sharma predicted, “Gas prices will most likely remain range bound around $3.75-$4.25/MMbtu until supply declines become more visible, since the flat onshore supplies as reflected in December’s EIA 914 data clearly didn’t impress the market.”
On the macroeconomic front, Zhang said, “The latest data suggest manufacturing activity in the US and Europe grew strongly in February, while Asia experienced some, probably welcomed, cooling. The February manufacturing PMI [Purchasing Manager's Indices] for both the US and Europe jumped to multiyear highs. In contrast, the HSBC Group’s PMI survey for China and Taiwan fell by 3 and 4 points month-over-month respectively. The strong manufacturing data in the developed regions also supported the oil market.”
US inventories
The Energy Information Administration said Mar. 2 commercial US crude inventories dropped 400,000 bbl to 346.4 million bbl in the week ended Feb. 25. The Wall Street concensus was for an increase of 800,000 bbl. Gasoline stocks fell 3.6 million bbl in the same period to 234.7 million bbl, surpassing analysts’ expectations of a 400,000 bbl dip.
Both finished gasoline and blending components decreased last week. Distillate fuel inventories were down 800,000 bbl to 159.2 million bbl, far short of the 1.5 million bbl decline anticipated by Wall Street.
The American Petroleum Institute earlier reported crude stocks fell 1.08 million bbl to 344.7 million bbl in the same week. It reported a 4.9 million bbl drop in gasoline inventories, and a 1.4 million bbl decline in distillate fuel.
EIA reported imports of crude into the US dipped by 96,000 b/d to 8 million b/d last week. Total gasoline imports were unchanged at 808,000 b/d, while distillate fuel imports averaged 170,000 b/d. In the 4 weeks through Feb. 25, crude imports averaged 8.3 million b/d, down 480,000 b/d from the comparable period a year ago.
The input of crude into US refineries increased 263,000 b/d to 13.8 million b/d last week with units operating at 80.9% of capacity. Gasoline production increased to 9.2 million b/d, while distillate fuel production grew to 4.1 million b/d, said EIA officials.
Energy prices
The April contract for benchmark US light, sweet crudes climbed $2.66 to $99.63/bbl Mar. 1 on the New York Mercantile Exchange. The May contract escalated $2.76 to $101.40/bbl On the US spot market, WTI at Cushing, Okla., was up $2.66 to $99.63/bbl.
Heating oil for April delivery increased 8.46¢ to $3.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 9.07¢ to $2.98/gal.
The April natural gas contract, however, dropped 16.4¢ to $3.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 8.8¢ to $3.86/MMbtu.
In London, the April IPE contract for North Sea Brent crude traded above $116/bbl before closing at $115.42/bbl, up $3.62 for the day. Gas oil for March continued to climb, up $8.50 to $940.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 23¢ to $108.27/bbl.
Contact Sam Fletcher at [email protected].
Rystad Energy.
