MARKET WATCH: Crude price rebounds above $50/bbl

Sam Fletcher
Senior Writer

HOUSTON, Apr. 30 -- Crude prices rebounded above $50/bbl Apr. 29 on the New York market amid mixed signs that the economic recession may be nearing bottom.

At the end of a 2-day meeting, Federal Reserve officials said the rate of economic decline appears to have slowed since mid-March. That helped push the Dow Jones industrial average up 169 points to its highest close since early February. Earlier, the Department of Commerce reported the gross domestic product shrank 6.1%—more than analysts had expected—in the first quarter.

The Energy Information Administration reported commercial US crude inventories jumped 4.1 million bbl to 374.7 million bbl in the week ended Apr. 24. Gasoline stocks, however, fell 4.7 million bbl—the largest weekly decline since September—to 212.6 million bbl in the same period. Distillate fuel inventories increased 1.8 million bbl, compared with a consensus for a 1 million bbl rise to 144.1 million bbl (OGJ Online, Apr. 29, 2009).

Olivier Jakob at Petromatrix, Zug, Switzerland, reported, "A case could be made that the larger draw in gasoline pushed the oil markets higher, but we believe rather that the weekly statistics continue to be discounted and that oil prices continue to be dominated by the exogenous inputs of the global markets." He noted US equity markets digested a worse-than-expected first quarter gross domestic product and are starting to discount 'old' news such as large crude inventories and are focusing instead on any signs of a bottoming as equities continue to rise and the dollar index falls.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said, "Refined product inventories (gasoline plus distillate plus jet fuel) decreased 2.4 million bbl (0.6%) last week." However, he said the decline in gasoline stocks appears to be primarily due to lower production and less imports, not increased consumption.

EIA regional data showed declining gasoline inventories in every area of the US, while the East Coast was the only region where gasoline production increased last week. Rousseau said, "The only reason why gasoline inventories declined [on] the East Coast was that imports fell to their lowest weekly level in 2 months, which is unusual for this time of year when imports have historically risen to build gasoline stocks for the summer driving season."

Rousseau said, "Distillate posted its second consecutive extremely low-demand week, a troubling sign for the overall economy, in our view. We remain concerned that weak refined product demand will keep downward pressure on refining margins in the near term."

Meanwhile, the World Health Organization has raised its alarm level on the Mexican flu to 5 from 4 on a scale to 6. But after the initial Apr. 27 sell-off, Jakob said, "Global markets have been discounting the flu as there is too great a gap between the statements of the WHO ("all humanity is under threat") and the numbers it is reporting (seven deaths in Mexico and one death in the US, the reported US death being that of a Mexican toddler that arrived in the US early in the month with 'health issues'). Mexico is ordering a partial economic shutdown for a few days and the flu will have some impact on the local economy, but in the big picture the investor's focus is starting to shift more and more to spotting 'bamboo shoots' (green shoots in the Chinese economy)."

Energy prices
The June contract for benchmark US sweet, light crudes gained $1.05 to $50.97 bbl Apr. 29 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., increased the same amount to the same price. The July crude contract was up $1.12 to $52.21/bbl on NYMEX. Heating oil for May delivery increased 1.24¢ to $1.35/gal The same month contract for reformulated blend stock for oxygenate blending (RBOB) gained 5.07¢ to $1.45/gal.

The June contract for natural gas lost 3.7¢ to $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 15.5¢ to $3.42/MMbtu.

In London, the June IPE contract for North Sea Brent advanced 79¢ to $50.78/bbl. Gas oil for May increased $7.75 to $427.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes gained $1.28 to $49.98/bbl on Apr. 29.

Contact Sam Fletcher at [email protected].