MARKET WATCH: Energy prices rebound, lifted by equities rally

Energy prices generally rebounded Mar. 26 with the front-month crude near a 4-month high in the New York market, pulled up by the broader equities market climbing more than 2% for the day.

Mar 27th, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 27 -- Energy prices generally rebounded Mar. 26 with the front-month crude near a 4-month high in the New York market, pulled up by the broader equities market climbing more than 2% for the day.

"Oil tried to do its part to prop up [underperforming] energy stocks by climbing another 3% to close above $54/bbl, a 4-month high. The recent run in oil prices continues to be spurred by the falling dollar and broader market rebound," said analysts at Raymond James & Associates Inc.

"Since late-March lows at $33.98/bbl, crude prices have gained more than $20/bbl, or 59%," said analysts at Pritchard Capital Partners LLC, New Orleans. They also noted government data for 2 of the last 3 weeks show the first improvements in US demand from year-ago levels. "Last week demand increased by 2.2% but remains 3.2% lower year over year on a 4-week average," they said.

Other sources said the average US retail price for conventional gasoline climbed to $2/gal for the first time since November.

Olivier Jakob at Petromatrix, Zug, Switzerland, reported, "While we continue to debate about the state of the current oil stocks and the lack of demand, the futures markets have been trading over the last 2 weeks not the prompt but the long-dated oil fundamentals. This contango rally has now pushed the back-of-the-curve crude values back to levels that should start to cover the marginal cost of production."

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, lowered estimates of 2009 earnings at six refining companies primarily due to the sharp decline in refining margins in March and the potential for increased gasoline imports during this year's second quarter.

The Commerce Department reported Mar. 27 consumer spending increased by 0.2% in February, as expected. In January, spending jumped by 1%, exceeding expectations of a 0.6% gain. However, commerce officials said US income dropped for the fourth time in 5 months, down 0.2% in February. After-tax incomes were down 0.1% in the same period.

Meanwhile, Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "The global economy is in worse shape than the consensus expects, but…the world can avert a 1930s style downturn. We expect the energy and industrial metals complex eventually will be the major beneficiaries of and improving economic outlook."

He said, "We would view [crude futures] curve flattening over the past few weeks as a sign that weak supply-demand fundamentals have merely stabilized rather than started to tighten. However, we are becoming more confident that oil prices have set a floor following aggressive production cuts [by the Organization of Petroleum Exporting Countries], disappointing non-OPEC supply growth, and signs that gasoline demand is recovering. We have also reduced our outlook for US natural gas prices to reflect the devastating impact on demand in the wake of the US downturn."

Energy prices
The May contract for benchmark US light, sweet crudes rebounded $1.57 to $54.34/bbl, wiping out the loss from the previous session on the New York Mercantile Exchange. The June contract advanced $1.59 to $55.78/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., jumped by $2.07 to finally catch up with the May crude contract at $54.34/bbl. Heating oil for April increased 1.66¢ to $1.48/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) popped up 3.61¢ to $1.53/gal.

Natural gas for the same month continued to fall, down 38.2¢ to $3.95/MMbtu on NYMEX. Pritchard Capital Partners said the steep decline was driven by a weak US gas storage number (OGJ Online, Mar. 26, 2009). On the US spot market, gas at Henry Hub, La., escalated by 27.5¢ to $4.04/MMbtu.

In London, the May IPE contract for North Sea Brent crude increased $1.71 to $53.46/bbl. Gas oil for April dropped $2.50 to $463.25/tonne.

The average price for OPEC's basket of 12 reference crudes gained 63¢ to $50.77/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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