MARKET WATCH: Crude falls, then rebounds overnight

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 19 -- The April contract for benchmark US crudes dropped $1.02 to $48.14/bbl in regular trading Mar. 18 in New York but then rebounded to $49.87/bbl in after-hours electronic trading and topped $51/bbl in early trading Mar. 19 after the Federal Reserve said it will buy another $750 billion in mortgage securities and $300 billion in longer-term government bonds over the next 6 months to help shore up the financial system.

With its benchmark interest rate already near zero, the Fed decided to raise the ceiling from $500 million to $1.25 trillion on its purchases of mortgaged securities guaranteed by Fannie Mae and Freddie Mac.

"The resulting inflation fears drove a serious rally in commodities, most notably gold and oil," said analysts in the Houston office of Raymond James & Associates Inc. "This marks the first time that crude has been above $50/bbl since January."

Meanwhile, the Energy Information Administration's report on US petroleum inventories for the week ended Mar. 13 was "highlighted by a much larger than expected gasoline build driven by relatively weaker demand," said analysts at Pritchard Capital Partners LLC, New Orleans. They noted 300,000 bbl of crude was added to storage at the key exchange point at Cushing, Okla.

"With refinery utilization down to just over 82% of capacity, the builds in crude oil inventories may not be coming to an end as some market-watchers expect," they said. US demand for gasoline fell 17,000 b/d.

Paul Horsnell, a managing director and head of commodities research at Barclays Capital in London, said the latest US weekly data further emphasize the weakness in the diesel market, with US diesel inventories still rising counter-seasonally.

Moreover, he said, "Oil market sentiment has shifted away from the purely macroeconomic to a greater consideration of overall balances, allowing it to take the Organization of Petroleum Exporting Countries' roll-over of [production] targets as a statement about the return to some equilibrium in global balances."

He said, "What has happened is not as simple as a shift from bearish to bullish, it is more a reassertion of the primacy in sentiment of oil market fundamentals over the more externally driven and macroeconomic nature of sentiment in previous months. That shift in sentiment is seen most obviously in the reaction to the latest OPEC meeting."

Since OPEC's decision against another production cut at its Mar. 15 meeting, crude prices have rallied above $45/bbl for the first time since "the very start of this year," Horsnell noted. Now that West Texas Intermediate has moved back above $50/bbl to its highest levels in more than 3 months, he said, "A broader market acknowledgment seems to have been made that the supply-side contraction has now overtaken the losses on the demand side, laying the basis for a period of tightening."

In other news, the Labor Department said Mar. 19 initial requests for unemployment insurance fell last week to a seasonally adjusted 646,000 from the previous week's revised 658,000, lower than analysts anticipated. However, continuing claims set a new record for the eighth consecutive week, jumping by 185,000 to 5.47 million, more than analysts expected.

Other energy prices
The May contract for benchmark US dropped $1.14 to $48.90/bbl during the regular Mar. 18 trading session on the New York Mercantile Exchange. On the US spot market, WTI at Cushing continued to track the April NYMEX contract, down $1.02 to $48.14/bbl. Heating oil for April declined 1.07¢ to $1.26/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) dropped 5.81¢ to $1.37/gal.

Natural gas for the same month fell 12.8¢ to $3.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 2¢ to $3.76/MMbtu. EIA reported the withdrawal of 30 bcf of natural gas from US underground storage in the week ended Mar. 13. That left 1.65 tcf of working gas in storage, up 326 bcf from the same period a year ago and 228 bcf above the 5-year average.

Raymond James analysts said, "We are now officially beginning the spring shoulder season. As a result, it will become difficult to make accurate estimates, and actual storage numbers will begin to have less meaning. That being said, we still believe that demand degradation and supply growth will cause us to remain looser on a year-over-year basis."

In London, the May IPE contract for North Sea Brent crude dipped 58¢ to $47.66/bbl. Gas oil for April gained $2.25 to $402/tonne.

The average price for OPEC's basket of 12 reference crudes was up 93¢ to $45.64/bbl on Mar. 18.

Contact Sam Fletcher at [email protected].