Sam Fletcher
OGJ Senior Writer
HOUSTON, Apr. 13 -- Crude prices rallied above $52/bbl in light trading Apr. 9 ahead of the 3-day Easter holiday in the West but fell below $50/bbl in early trading Apr. 13 amid negative economical indicators after the Paris-based International Energy Agency again lowered its outlook for global demand for oil.
A "strong rally" in the last 15 min of trade Apr. 9 brought the front-month crude contract "almost to the unchanged level from a week ago," observed Olivier Jakob at Petromatrix, Zug, Switzerland. "It is now the fourth week in a row that May West Texas Intermediate finished the week almost unchanged from the previous week." Meanwhile, North Sea Brent retains a price premium over WTI and was up 59¢/bbl for the week.
IEA reduced its oil demand projection by 1 million b/d to 83.4 million b/d—the lowest level in 5 years—based on reassessment of world gross domestic product and lower-than-expected first quarter demand data. That would put 2009 world demand for crude 2.4 million b/d below the 2008 level. It was the eighth consecutive month IEA has reduced its original forecast of 2009 demand.
"The agency also said that February 2009 oil inventories in developed nations grew to the highest levels recorded since 1993," said analysts in the Houston office of Raymond James & Associates Inc. "The EIA revision occurred despite Chinese data showing increasing crude oil imports and industrial output growth. Preliminary trade data revealed that China imported 16.3 million metric tons of crude oil in March, up 33% from 11.7 million metric tons in February, as industrial output growth grew to 8.3% in March after a record low of 3.8% in the first 2 months of 2009," they said.
IEA analysts now expect oil production outside the member states of the Organization of Petroleum Exporting Countries to decline by 300,000 b/d this year, compared with the agency's previous estimate of flat non-OPEC supply. "The lower production estimate is primarily a function of lower production in the first quarter in Asia," said Raymond James analysts. "The IEA has significantly cut its demand outlook over the last several months, but we continue to believe its 2009 demand forecast is too optimistic."
In New Orleans, analysts at Pritchard Capital Partners LLC, cited Oil Movements reports that OPEC oil shipments are declining 1.2% to 22.24 million b/d in April, putting the group at 75-80% compliance with their official production quota. Pritchard Capital Partners is among many observers who do not expect OPEC to get much closer to its target quota.
Meanwhile, Raymond James analysts reported, "Over the past 6 months, natural gas and coal prices have plummeted, dropping 50% and 60%, respectively." Under current conditions, they said, the market price that most likely would encourage customers to switch from coal to gas is "near $3.25/Mcf." They added, "This is just a theoretical guess given that the actual price band using the full range of gas and coal plant efficiencies could be as low as $2/Mcf and as high as $4/Mcf."
The analysts said, "Despite the persistent talk of coal-to-gas switching, it is difficult to find evidence to support such claims on a massive scale." They anticipate an average 500 MMcfd of coal-to-gas switching in the period of Nov. 1-Oct. 31. "At most, we wouldn't expect more than 1.5 bcfd of coal-to-gas fuel switching to actually occur, and that would only last for a few months in the spring. The bottom line is that coal-to-gas fuel switching would not appear to be the savior of the summer gas market, nor the death knell for the coal markets," said Raymond James officials.
Energy prices
The May contract for benchmark US light, sweet crudes gained $2.86 to $52.24/bbl Apr. 9 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., continued trailing the front-month futures contract, down by the same amount to the same price. The June crude futures contract was up $2.86 to $52.24/bbl on NYMEX. Heating oil for May delivery increased 3.06¢ to $1.43/gal. The May contract for reformulated blend stock for oxygenate blending (RBOB) climbed 4.14¢ to $1.48/gal.
The May natural gas contract dropped 2¢ to $3.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 5.5¢ to $3.57/MMbtu.
In London, the May IPE contract for North Sea Brent gained $2.47 to $54.06/bbl. The May gas oil contract dropped $4.75 to $452.75/tonne.
Contact Sam Fletcher at [email protected].