Sam Fletcher
OGJ Senior Writer
HOUSTON, Apr. 27 -- Crude prices continued a 4-day rally Apr. 24 on the New York market, led by a surge in the general equity market on reports of better-than-expected earnings by top companies in various industries.
"Surprisingly perhaps, stock markets have rallied in the past month, and it will be interesting to see in the next few weeks if it can last," observed analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK.
A weak US dollar also contributed to the price rally despite large inventories of crude and petroleum products. "The dollar dropped against the euro after a report showed that German business confidence advanced from a 26-year low in April on expectations that the recession in Europe's biggest economy will ease later this year," said analysts at Pritchard Capital Partners LLC, New Orleans.
In Houston, however, analysts in the Houston office of Raymond James & Associates Inc. reported Apr. 27, "After climbing over 12% last week, crude prices are down 5% this morning on concerns about the economy weakening as well as the effect that the swine flu outbreak will have on air travel."
Raymond James analysts said, "The US has already declared a public health emergency, and the European Union's health commissioner recently advised against any nonessential travel to the US and Mexico. Regardless of a potential decrease in air travel, crude stockpiles are at their highest level since 1990, and speculators are net-short oil for the first time in 6 weeks." With broader market futures down 1.5% and natural gas down 3% in premarket trading Apr. 27, it could be "an ugly day for the higher beta energy stocks," they said.
The front-month May crude contract expired Apr. 21 and the June contact took that position. Yet the price support level remained near $50/bbl "for the 6th week in a row," noted Olivier Jakob at Petromatrix, Zug, Switzerland. By the close of trade Apr. 24, the June contract was down a total 92¢ for the week, while North Sea Brent lost $1.68/bbl over the same period. Heating oil dropped $2.26/bbl, while the reformulated blend stock for oxygenate blending (RBOB) lost $2.10/bbl. "Natural gas remains under heavy pressure and lost 11.6% during the week," Jakob said.
KBC analysts reported, "The oil market is stuck in a rut around $50/bbl for Brent and any sign of tightening is swiftly smothered by negative news from the global economy and dire numbers for oil demand."
They said, "Crude oil stocks in the US have reached yet another 19-year high [in the week ended Apr. 17] with a whopping 3.9 million bbl week-on-week rise. Higher refinery utilization (a giddy 83.4%) should help lower crude stocks, assuming that operations are stepped up, but with products demand so weak there is the prospect of rising products stocks…. The truly shocking number is that for the past 4 weeks [through Apr. 17] US total products demand was 6.5% down on the same period last year. A very visible sign of fragile fundamentals is the remorseless growth in stocks of oil sitting at sea."
KBC analysts said, "Subject to any sudden improvement in oil demand prospects—and this is highly unlikely—or a revival of signs that the Organization of Petroleum Exporting Countries might cut production again—also highly unlikely—it looks as if oil prices will have little scope to move up in the near future."
However, Raymond James analysts said, "Short term, oil prices could go either direction. Oil bulls can point to the unprecedented OPEC compliance, declining non-OPEC production, and easier year-over-year oil price and demand comparisons this summer. On the flip side, oil bears can take comfort in the fact that the global economic outlook remains weak, oil demand continues to be anemic, US crude inventories are terribly bloated, and recent US inventory trends are ugly.
"Despite these near-term uncertainties, we are increasing our 2009 oil price forecast to $48/bbl (from $43/bbl). The increase in our price forecast is primarily a reflection of higher-than-anticipated actual oil prices in the second quarter, not that we are more bullish about the short-term direction of crude. The real fundamental reason for the price increase was because US Cushing[, Okla.,] oil inventories fell in March—so too did the pricing gap between West Texas Intermediate and global crude prices (read: Brent). Note that our third quarter estimate is flat with our second quarter forecast due to the aforementioned uncertainty in the near-term direction of oil prices."
They said, "Longer term, we remain more optimistic about crude pricing. We believe that 2010 crude prices will be higher than 2009 because:
-- Oil demand should gradually improve from the highly depressed levels of the past nine months (or at least be less negative).
-- Non-OPEC production should begin to fall sharply due to accelerating decline rates and reduced capital spending.
-- OPEC production cuts should eventually show up as a reduction of bloated US crude inventories. Accordingly, we are maintaining our 2010 price forecast of $65/bbl. While we are confident that 2010 crude prices will be higher, the magnitude of the improvement is still very much up in the air. If the global economy stabilizes or improves in 2010, these estimates will likely move much higher."
Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said, "We anticipate that weak refined product demand and higher supply will increase gasoline inventories further and keep downward pressure on refining margins this quarter. Accordingly, we are lowering our second quarter earnings estimates for all the refiners except Tesoro Corp., and our earnings forecasts are now 44% below the first call consensus for the second quarter, on average."
Energy prices
The June contract for benchmark US light, sweet crudes escalated $1.93 to $51.55/bbl Apr. 24 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing climbed $2.18 to $50.80/bbl. Heating oil for May delivery gained 5.04¢ to $1.37/gal on NYMEX. RBOB for the same month increased 4.76¢ to $1.44/gal.
Natural gas prices continued to fall with the May contract down 11.2¢ to $3.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 10.5¢ to $3.33/MMbtu.
In London, the June IPE contract for North Sea Brent crude increased $1.56 to $51.67/bbl. The May gas oil contract rebounded by $12 to $433/tonne.
The average price for OPEC's basket of 12 reference crudes gained $1.37 to $49.97/bbl on Apr. 23. So far this year, OPEC's basket price has averaged $44.55/bbl, down sharply from $94.45/bbl for all of 2008.
Contact Sam Fletcher at [email protected].
