For the first time ever, a front-month contract for benchmark US light, sweet crudes closed above $100/bbl Feb. 19—at $100.01/bbl, up $4.51 for the day—after setting a new intraday record of $100.10/bbl on the New York Mercantile Exchange.
The expiring March contract hit a subsequent high of $101.32/bbl in intraday trading Feb. 20 before closing at a record $100.74/bbl in New York, having climbed more than $10/bbl over the seven previous sessions as Venezuela announced it would halt direct oil sales to ExxonMobil Corp. (OGJ Online, Feb. 13, 2008). The new front-month April contract closed unchanged at $99.70/bbl after fluctuating between $97.99/bbl and $100.86/bbl in the same session, but its “ability to rebound from the day’s low” demonstrated “its remaining intrinsic strength,” said Olivier Jakob at Petromatrix, Zug, Switzerland. With this strong technical rally, NYMEX crude futures prices moved to the top of the wider $86-100/bbl range that has been in place since October. Jakob said, “It is one thing to trade technically within a range, but it takes conviction to break it.”
Crude futures first touched $100/bbl in intraday trading Jan. 2 during the first NYMEX session of 2008, then climbed a few cents above that historic high in the next session before falling back in subsequent weeks. But it fluctuated generally at $85-95/bbl for several weeks prior to the latest price run-up.
Prices climbed as several recent incidents reminded traders that petroleum supplies are nearly always at risk. Four workers were injured Feb. 18 in an explosion and fire at Dallas-based Alon USA Energy Inc.’s 70,000 b/d sour crude refinery in Big Spring, Tex. (OGJ Online, Feb. 19, 2008). The entire refinery was damaged in the mishap, officials said, and may resume only partial operations in 2 months.
Henry Okah, leader of the Movement for the Emancipation of the Niger Delta, was extradited from Angola to face charges in Nigeria for murder, arms dealing, oil smuggling, and other crimes. That could ignite a new round of violence by militants that would derail peace talks between the Nigerian government and the rebels.
Energy prices pulled back Feb. 21 with crude down to $98.23/bbl, ending a 6-session rally, when the Energy Information Administration reported a larger-than-expected increase in US crude inventories. But on Feb. 22, the April contract pushed as high as $99.37/bb before closing at $98.81/bbl. None of these incidents materially affected market fundamentals of supply and demand. But as often happens, they provided the excuse for traders to move in the direction toward which they were already inclined.
US inventories
EIA reported crude inventories rose 4.2 million bbl to 305.3 million bbl in the week ended Feb. 15, up from a Wall Street consensus of a 2.7 million bbl increase. Gasoline inventories gained 1.1 million bbl to 230.3 million bbl in the same week vs. Wall Street expectations of a 500,000 bbl increase. Distillate fuel inventories fell 4.5 million bbl to 122.5 million bbl, more than the expected decline of 1.7 million bbl. Imports of crude into the US increased by 365,000 b/d to 10.1 million b/d. The input of crude into US refineries fell, however, down 97,000 b/d to 14.5 million b/d with refineries operating at 83.5% of capacity that week. Gasoline production declined to 8.8 million b/d, with distillate fuel production down to 4 million b/d.
Michael C. Schmitz, Banc of America Securities LLC, New York, said, “The larger-than-expected build [in crude] was primarily due to a decline in refinery utilization from 85.1% the prior week to 83.5% (the lowest since March 2006) due to seasonal maintenance, combined with an increase in imports to 10.1 million b/d from 9.7 million b/d the prior week. Thus, current crude inventories of 305 million bbl, which equate to about 21 days of demand coverage, were 6.8% below last year and 0.6% above the 10-year average. Gasoline production averaged 70,000 b/d lower than the prior week with low utilization being partially offset by above-normal product yields....Total [gasoline] imports remained essentially flat.”
Jacques H. Rousseau, an analyst at Soleil-Back Bay Research., noted that refined product inventories of gasoline, distillate, and jet fuel dropped 4.7 million bbl (1.2%) vs. the prior week, marking “the first decline in 9 weeks.” Rousseau said, “We expect this positive trend to continue due to seasonal rising demand (which increased 6% week-over-week) and lower supply. We view falling inventories as a leading indicator for improvements in refining margins and share prices.” He said refined product inventories should decline by 10% by the end of the first quarter.
(Online Feb. 25, 2008; author’s e-mail: [email protected])
