MARKET WATCH: Crude futures price climbs above $101/bbl

March 26, 2008
After losing for three consecutive sessions, oil prices rose Mar. 25 in the New York market as the value of the US dollar again weakened against the euro.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 26 -- After losing for three consecutive sessions, oil prices rose Mar. 25 in the New York market as the value of the US dollar again weakened against the euro.

Some of the oil price increase resulted from "news that a worker strike in Gabon had halted 60,000 b/d output from a Royal Dutch Shell PLC subsidiary," said analysts in the Houston office of Raymond James & Associates Inc. They reported crude prices were up in early trading Mar. 26 in expectation of a crude inventory build and news of continued militant fighting in Basra and Baghdad.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The $100/bbl support managed to hold, and as long as the dollar index stays weak and other commodities supported, it will require some damaging Department of Energy statistics to break it to the downside. The weakening backwardation [of crude futures prices] is a pressure point that needs to be monitored."

Moreover, the market "overlooked" an unusual weekend statement from Saudi Arabia officials, Jakob said. "When President George W. Bush went to the Kingdom in mid-January, all he got was a statement from Ali I. Al-Naimi [Saudi Arabia's oil minister] that they will 'increase output when the market needs more,'" he said. "Following the visit of Vice-President Dick Cheney, Saudi Arabia published this weekend another statement that can be seen as vague hot air but that is nevertheless showing changes from usual patterns. The statement did not originate from Al-Naimi but from the Supreme Council of Petroleum Affairs (the king) and also states that Saudi Arabia will work to '…avoid the effect of harmful speculation.' Up until now the official Saudi line had been rather that they could do nothing about speculation, and it is unusual for statements to originate from the Supreme Council."

Jakob also noted that the US Federal Highway Administration's report on traffic volume trends for December 2007, released last week, showed travel on all roads and streets was down 3.9% from December 2006. "More importantly," he said, "2007 will be the first year with a reduction in vehicle miles traveled. Cumulative travel for 2007 is estimated to be [down] 0.4% for the year compared with 2006. Vehicle miles traveled growth in 2005 and 2006 was already lower than previous years, but the trend is now shifting from slower growth to negative."

He added, "US driving patterns are showing a structural decline that started 2 years ago as oil prices were starting the accelerated move upwards and which will impact negatively demand for…gasoline. This negative impact will be reenforced by ethanol, which is taking a greater share of product supplied. Last year the US gasoline market was mainly influenced by disruption to production and in view of the slowing demand this year should be a greater challenge to the gasoline crack, especially with starting stocks at multiyear highs."

US inventories
Instead of an expected 1.7 million bbl build in commercial US crude inventories, the Energy Information Administration said Mar. 26 that crude stocks were unchanged at 311.8 million bbl in the week ended Mar. 21. Gasoline stocks fell 3.3 million bbl to 229.2 million bbl during the same period, a much sharper decline than the 1 million bbl draw that Wall Street analysts expected. Distillate fuel inventories decreased by 2.2 million bbl to 111.3 million bbl, vs. an expected draw of 1.5 million bbl. Propane and propylene inventories decreased by 1.9 million bbl to 25.4 million bbl in the same week.

Imports of crude into the US fell 570,000 b/d to 8.9 million b/d in the same period. The input of crude into the US refining system lost 292,000 b/d to 14.1 million b/d, with units operating at 82.2% of capacity. Gasoline production declined to 8.5 million b/d, while distillate fuel production rose to 3.9 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes gained 36¢ to $101.22/bbl Mar. 25 on the New York Mercantile Exchange. The June contract advanced by 59¢ to $100.83/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., lost 9¢ to $100.98/bbl. Heating oil for April delivery dropped 3.83¢ to $2.92/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) continued climbing, up 3.9¢ to $2.68/gal.

The April natural gas contract gained 9¢ to $9.42/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 22¢ to $9.25/MMbtu.

In London, the May IPE contract for North Sea Brent crude increased 74¢ to $100.60/bbl. The April gas oil contract, however, fell $19.25 to $909.25/tonne.

The average price for OPEC's basket of 13 reference crudes inched up 5¢ to $96.20/bbl on Mar. 25. So far this year, OPEC's basket price has averaged $92.04/bbl, up from an average $69.08/bbl for all of 2007.

Contact Sam Fletcher at [email protected].