MARKET WATCH: Crude prices continue to edge upwards

The front-month crude contract slipped in early trading Mar. 24 as the dollar strengthened but the intraday price later rallied above $54/bbl on the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 25 -- The front-month crude contract slipped in early trading Mar. 24 as the dollar strengthened but the intraday price later rallied above $54/bbl on the New York market.

With a plan shaping up to resolve the banking crisis, markets have been more optimistic in recent sessions with the Dow Jones Industrial average jumped nearly 500 points.

"For the first time since the 1960s, the [US Federal Reserve] will begin buying Treasury bonds today," said analysts in the Houston office of Raymond James & Associates Inc. "With plans to buy up to $300 million of Treasury securities over the next 6 months, today's auction will include $34 billion of 5-year and 10-year notes," RJA analysts said.

"On the energy front, crude continues to trend lower, particularly on [the latest American Petroleum Institute] report of a 4.6 million bbl increase in crude stocks and expectations for [the Mar. 25 Department of Energy] report to show a 1.1 million bbl increase in crude inventories. On the natural gas front, while prices have bounced back meaningfully in the last week, with an oversupplied market and weakening economic demand, we would not expect prices to stay at such levels as we head into summer," RJA analysts said.

The Wall Street consensus also anticipated a gasoline drawdown of 700,000 bbl and a decline of 100,000 bbl in distillate fuels via the report by DOE's Energy Information Administration for the week ended Mar. 20.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The current rally remains one of very light volume, led by the back of the curve and by heating oil." He noted, "Heating oil has managed to move back to parity to reformulated blend stock for oxygenate blending (RBOB) and we continue to struggle with the rationale of the strength in heating oil."

Contributing factors, Jakob said, included a Mar. 23 announcement Valero Energy Corp. is keeping its 210,000 b/d Delaware refinery under maintenance until early May. On Mar. 24, Total SA said it will shut down its 232,000 b/d Port Arthur, Tex., refinery for an undisclosed period to "adjust to the market." Jakob said, "Stocks of crude oil are high, stocks of products are high, and refineries have to shut down to make some space in the tank-farms or push the oil on floating storage. Shutting down refinery runs and forcing a draw of products should in the end improve some of the product crack, but on a days-of-cover basis, the refinery run cuts should still have a more positive impact on gasoline than heating oil."

US inventories
EIA's actual report of commercial US crude inventories showed an increase of 3.3 million bbl to 356.6 million bbl in the week ended Mar. 20, which exceeds the Wall Street consensus of a 1.1 million bbl gain. Crude stocks are above average for this time of year, EIA reported.

US gasoline inventories fell by 1.1 million bbl to 214.6 million bbl during the same week. Distillate fuel stocks decreased by 1.6 million bbl to 143.9 million bbl.

Imports of crude into the US increased by 204,000 b/d to 9.4 million b/d during the same period. The input of crude into US refineries decreased by 45,000 b/d to 14.1 million b/d, with refineries operating at 82% of capacity. Gasoline procution decreased to 8.7 million b/d, while distillate production also fell to 3.7 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes inched up 18¢ to $53.98/bbl on the New York Mercantile Exchange. The June contract dropped 10¢ to $55.63/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 48¢ to $53.48/bbl. Heating oil for April delivery gained 2.89¢ to $1.50/gal on NYMEX. The April contract for RBOB increased 1.45¢, also closing at an average $1.50/gal.

Natural gas for the same month rose 5.3¢ to $4.35/MMbtu on NYMEX. In New Orleans, analysts at Pritchard Capital Partners LLC said, "Natural gas was helped by comments from Chesapeake Energy Corp.'s [chief executive officer] that he sees signs of improvement in US natural gas demand and expects the market to rebalance in the third quarter, earlier than his prior forecast. Fuel switching by some utilities from coal to natural gas has appeared to put a temporary floor on natural gas prices."

In London, the May IPE contract for North Sea Brent increased 3¢ to $53.50/bbl. The April contract for gas oil was up 75¢ to $468.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes gained 26¢ to $50.44/bbl on Mar. 24.

Contact Sam Fletcher at samf@ogjonline.com.

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