MARKET WATCH: Crude price increases for third day

Crude prices climbed higher Apr. 23 in a third consecutive day of gains driven by a weak US dollar and some better-than-expected energy-related earnings reports.

Apr 24th, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 24 -- Crude prices climbed higher Apr. 23 in a third consecutive day of gains driven by a weak US dollar and some better-than-expected energy-related earnings reports.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Despite lower-than-expected numbers on US existing home sales and no improvement in the unemployment numbers, US equities still managed to hold ground as more companies are releasing earnings on the better-than-expected side. More importantly, the dollar index has not managed to hold on…[to] a support level and has fallen fast overnight…."

Jakob said, "The dollar index and equities have been the leading trading inputs for oil in recent weeks." Near-term supply and demand fundamentals for oil are still poor, and inventories are still plentiful. However, Jakob said, "In recent days a few large investment banks have been revising upwards their gross domestic product and growth outlook for China. If a consensus starts to develop that the Chinese stimulus plan is starting to work, then we would expect more asset managers to come back to commodities despite the contango as they will not want to miss the early train to [China's rebound]."

In New Orleans, analysts at Pritchard Capital Partners LLC noted, "Crude prices have been consolidating in $47-55/bbl trading range for the last month or so."

Jakob said, "We need to respect the [price] stability of West Texas Intermediate over the last 4 weeks. The market has been able to absorb a lot of heavy fundamental data and the WTI contango needs to be closely monitored. In a narrowing contango, the oil markets after discounting the bad news could start moving into a pattern of positive reaction to any better than expected number on the fundamental side."

Pritchard Capital Partners cited industry reports that members of the Organization of Petroleum Exporting Countries are reducing crude shipments by 0.6% to 22.27 million b/d in the month ending May 9, with quota compliance now at 80% among affected members. Middle East exports are expected to fall 0.4% to 16.1 million b/d, with Saudi Arabia's output likely unchanged.

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "We believe additional OPEC production cuts are warranted in order to provide a more solid foundation to the oil price. We believe the International Monetary Fund's downgrade [of] global GDP growth this week supports this view as it sustains ongoing downside risks to global oil demand."

As for natural gas, Sieminski said, "We believe there is some risk that the entire coal supply cost curve is shifting downward as materials costs decline due to weaker worldwide demand. With inventories stockpiles increasing, the coal 'floor' on natural gas may not be fixed and may not offer a great deal of protection to producers, in our view."

Energy prices
The June contract for benchmark US light, sweet crudes traded at $48.37-49.92/bbl Apr. 23 before closing at $49.62/bbl, up 77¢ for the day on the New York Mercantile Exchange. The July contract advanced 37¢ to $51.07/bbl. On the US spot market, WTI at Cushing, Okla., climbed $1.27 to $48.62/bbl as it tried to get in step with the new front-month crude futures contract. Heating oil for May delivery lost 1.2¢ to $1.32/gal on NYMEX. The May contract for reformulated blend stock for oxygenate blending (RBOB) inched up 0.38¢, but its closing price was essentially unchanged at an average $1.39/gal.

Natural gas for the same month dropped 12.3¢ to a 6½-year low of $3.41/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 6.5¢ to $3.43/MMbtu. "Our expectation is that rising LNG imports (peaking at 1.7-3 bcfd in July-August) will keep natural gas prices from firming in the near term," said Pritchard Capital Partners analysts. "With key basins about to show sequential monthly declines (Barnett shale and the Rockies most likely first) we see a strong recovery by yearend with deliverability likely to decline by 3 bcfd (14 bcfd of declines offset by 11 bcfd of new adds assuming 850 gas rigs active for the year)."

They said the Elba Island, Ga., LNG terminal is scheduled to receive seven cargoes in April, up from three in March. "The cargoes, all sourced by BG Group, have mostly come from Egypt, but the last arrival, expected on Apr. 29, will be from Trinidad," the analysts said.

In London, the June IPE contract for North Sea Brent crude gained 30¢ to $50.11/bbl. The May gas oil contract continued to fall, down $3.25 to $421/tonne.

The average price for OPEC's basket of 12 reference crudes increased 9¢ to $48.60/bbl on Apr. 23.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest