MARKET WATCH: Crude price dips below $50/bbl

Energy prices continued to slip Apr. 14 as the Energy Information Administration reduced its world oil demand forecast by 180,000 b/d to 84.1 million b/d in 2009, down 1.6% from the 2008 level.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 15 -- Energy prices continued to slip Apr. 14 as the Energy Information Administration reduced its world oil demand forecast by 180,000 b/d to 84.1 million b/d in 2009, down 1.6% from the 2008 level.

Earlier, the International Energy Agency in Paris reduced its world oil demand projection by 1 million b/d to 83.4 million b/d—the lowest level in 5 years (OGJ Online, Apr. 14, 2009.) "The global economic slowdown continues to weigh heavily on demand for all fuel oils," said analysts at Pritchard Capital Partners LLC in New Orleans.

On Apr. 15, the US Department of Labor reported US consumer prices dipped 0.1% in March, with falling energy prices offsetting the biggest rise in tobacco prices in 10 years. Economists were expecting a 0.1% increase in prices.

The Federal Reserve also reported US production declined 1.5% in March. It marked the fifth consecutive month of production declines. Federal Reserve officials said US factories and mines utilization slipped from 70.3% in February to 69.3% in March, the lowest recorded level.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "US retail sales for March came in worse than expected…and are not confirming the up-tick seen in February. On a nominal basis, US retail sales in March were right on the average of the fourth quarter."

OPEC outlook
In its latest monthly market report, the Organization of Petroleum Exporting Countries said its basket of 12 reference crudes surged by $4.37 to an average $45.78/bbl in March in a market "dominated by developments in equities and other economic indicators."

OPEC officials observed, "Prices continued to strengthen in early April as economic sentiment showed some improvement following efforts by [the Group of 20—19 of the world's largest economies plus representatives from the European Union] to boost global growth. However, more recently, bearish reports showing a further slowdown in demand and higher stock levels have had a negative impact on prices." The average price for the OPEC basket dropped 85¢ to $51.07/bbl on Apr. 14.

OPEC officials reduced their projections of 2009 world oil demand by 400,000 b/d from February levels, down a total 1.4 million b/d to 84.18 million b/d, marking a second consecutive year of reductions. "The world economic recession continues to erode oil demand growth, particularly in the US, Japan, and China," said OPEC ministers. They expect oil demand among members of the Organization for Economic Cooperation and Development to decline over the entire year while countries outside the OECD see only minor growth of 130,000 b/d. "China's apparent oil demand in the first quarter moved into the red for the first time since 2005," they said.

OPEC members expect non-OPEC supply to increase by 300,000 b/d in 2009 following a decline of 200,000 b/d in 2008. In March, OPEC's crude production was down 145,000 b/d to 27.9 million b/d. Members expect demand for OPEC crude to be down 2.1 million b/d to 28.7 million b/d this year, following a decline of 300,000 b/d to 30.8 million b/d in 2008.

US inventories
On Apr. 15, EIA reported commercial US crude inventories jumped by 5.6 million bbl to 366.7 million bbl in the week ended Apr. 10, far exceeding the Wall Street consensus of a 1.8 million bbl build. In that same period, gasoline inventories dropped 900,000 bbl to 216.5 million bbl. That was more than analysts' expectations of a 500,000 bbl decline; yet US gasoline stocks remain above average for this time of year. Distillate fuel inventories fell 1.2 million bbl to 139.6 million bbl, also above average level for this period. Wall Street was looking for a draw of 1 million bbl.

Imports of crude into the US inched up 59,000 b/d to 9.4 million b/d in the same week. Total gasoline imports were 1.1 million b/d. Distillate fuel imports were 144,000 b/d.

Input of crude into US refineries dropped 300,000 b/d to 14 million b/d, however, with units operating at 80.4% of capacity. US gasoline production fell to 8.9 million b/d, while distillate fuel production increased to 4 million b/d.

Energy prices
The May contract for benchmark US dropped 64¢ to $49.41/bbl Apr. 14 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., was down the same amount to the same finish. The June crude contract lost 46¢ to $52.52/bbl on NYMEX. Heating oil for May delivery inched up 0.43¢ but the closing price remained virtually unchanged at an average $1.40/gal. The May contract for reformulated blend stock for oxygenate blending (RBOB) dipped 0.56¢ but also finished essentially the same at an average $1.46/gal.

The May natural gas contract bumped up 6.1¢ to $3.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 11.5¢ to $3.58/MMbtu.

On the natural gas front, analysts in the Houston office of Raymond James & Associates Inc. said, "The EIA reduced its industrial gas consumption forecast from a decline of 6% to 7.4% during 2009. Overall, the EIA expects total natural gas consumption to fall 1.8% in 2009 (vs. its previous forecast of a 1.3% decline). With expectations for industrial demand to remain depressed, NGL production levels at historic lows, and utility demand down 8% in January, we would take the under [position] on the EIA's estimate for total natural gas consumption (i.e., down more than 1.8%)."

In London, the May IPE contract for North Sea Brent crude lost 18¢ to $51.96/bbl. Gas oil for May jumped by $15.75 to $451.75/tonne.

Contact Sam Fletcher at samf@ogjonline.com.

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