MARKET WATCH: Energy prices regain some in waffling market

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 1 -- Energy prices generally increased Mar. 31, regaining some of the losses from the previous session as traders continued to waffle according to varying outlooks for supply and demand.

While members of the Organization of Petroleum Exporting Countries continue to comply with production cuts, weaker demand continues to weigh on oil prices, said analysts in the Houston office of Raymond James & Associates Inc.

"Comments by Venezuela's President Hugo Chavez regarding the need for further OPEC production cuts helped reverse earlier declines" in the Mar. 31 trading session, said analysts at Pritchard Capital Partners LLC, New Orleans. "OPEC's production cuts to date appear to be addressing the supply issue, but demand remains anemic."

Chavez issued a statement saying $80/bbl is a "fair" price for crude. Venezuela's Energy Minister Rafael Ramirez earlier said he expects oil to stabilize at $70/bbl, the minimum required to sustain investments in oil production.

US inventories
Crude prices declined in early trading Apr. 1 in anticipation of another increase in US crude stocks.

The Energy Information Administration said Apr. 1 US commercial crude inventories increased 2.8 million bbl to 359.4 million bbl in the week ended Mar. 27. That was a little short of Wall Street analysts' consensus of a 3 million bbl gain and well below the 4.6 million bbl build earlier estimated by the American Petroleum Institute. Nevertheless, US crude stocks are above average for this time of year.

Gasoline inventories also are above average with a gain of 2.2 million bbl to 216.8 million bbl during the same period. Wall Street expected a draw of 1.5 million bbl during the week. Distillate fuel stocks rose by 300,000 bbl to 144.2 million bbl and also are above average for this time of year. The Wall Street consensus was for a draw of 1.2 million bbl.

Imports of crude into the US increased 170,000 b/d to 9.6 million b/d last week. The input of crude into US refineries increased by a minimal 23,000 b/d to 14.2 million b/d, with units operating at 81.7% of capacity. Gasoline production increased to 8.7 million b/d while distillate fuel production increased to 3.9 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, observed, "Refined product inventories (gasoline plus distillate plus jet fuel) increased 2.7 million bbl (0.7%) last week due to a high level of imports and weak demand (except for gasoline). It is important to note that the rise in gasoline inventories was all in the 'blendstocks' category (up 3.7 million bbl), and that 'finished' gasoline inventories declined 1.5 million barrels week over week. On a positive note, comparisons to year-ago gasoline demand should become much stronger starting at the end of May due to weak 2008 data last summer."

Rousseau said, "EIA regional inventory data showed that despite continued low production levels on the East Coast (67% utilization rate), gasoline inventories increased 2.1 million bbl week over week due primarily to a high level of imports into the region (1.1 million b/d)." In California, gasoline consumption fell in the final quarter of 2008, marking the 11th consecutive quarter of declines. California gasoline consumption in December was 6.7% below the same month in 2007.

In other news, French President Nicolas Sarkozy said neither France nor Germany were satisfied with proposals for the Apr. 2 summit meeting of the G20 Group—19 of the world's largest economies plus representatives from the European Union—in London to discuss global economic conditions.

Sarkozy said he will not be a party to "false compromises" at the meeting. In his first major international appearance, President Barack Obama hopes to persuade other governments to pump more money into economic stimulus programs. However, France and Germany want to emphasize the need to rein in and regulate financial market excesses.

US House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) released a 648-page draft of clean energy legislation aimed at reducing US dependence on foreign oil and combating global warming (OGJ Online, Mar. 31, 2009). "There is a lot here to talk about, including cap-and-trade, a carbon tax, a national renewable power mandate, new coal plant standards, and more. The package is truly far-reaching, more so than we would have expected at such an early stage in the new administration," said Raymond James analysts. "The Energy and Commerce Committee aims to wrap up debate by the summer, but we are doubtful that such far-reaching legislation (especially with all the implications of cap-and-trade) can realistically get passed so quickly."

Energy prices
The May contract for benchmark US light, sweet crudes regained $1.25 to $49.66/bbl Mar. 31 on the New York Mercantile Exchange. The June contract increased $1.17 to $51.37/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., tracked the front-month futures contract, up $1.25 to $49.66/bbl. Heating oil for April inched up 0.12¢ but finished virtually unchanged at an average $1.34/gal on NYMEX. The contract for reformulated blend stock for oxygenate blending (RBOB) for the same month advanced 2.01¢ to $1.40/gal.

The May natural gas contract increased 3.7¢ to $3.78/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 8¢ to $3.61/MMbtu. "Supply and demand data for natural gas suggest continued weakness for this commodity, but if natural gas rebounds from $3.60-3.70 level, it would be the second time it has bounced from this level," said Pritchard Capital Partners.

In London, the May IPE contract for North Sea Brent crude climbed by $1.24 to $49.23/bbl. Gas oil for April, however, fell $19.25 to $420/tonne.

The average price for OPEC's basket of 12 reference crudes lost $1.07 to $46.65/bbl on Mar. 31.

Contact Sam Fletcher at [email protected].