MARKET WATCH: Crude prices climb a second day

Sam Fletcher
Senior Writer

HOUSTON, May 1 -- Crude prices continued to increase Apr. 30, but at a much slower pace than the previous session as traders assessed a mixed-bag of economic indicators.

Shortly after the Apr. 30 equity market opened in New York the Dow Jones Industrial Average fell 17 points. In Houston, Analysts at Raymond James & Associates Inc. said, "The broader market finally realized the combination of global swine flu and a Chrysler bankruptcy is not positive news."

However, they said, "Oil prices appear to have stabilized around $50/bbl despite extremely weak fundamentals. Crude inventories are at record highs, and the Energy Information Administration released data that showed oil demand in the month of February was down 5.4% [from a year ago] and at its lowest level in 11 years."

In the week ending Apr. 25, initial claims for US unemployment benefits totaled 631,000, a decrease of 14,000 from the previous week's revised figure of 645,000. The 4-week moving average was 637,250, a decrease of 10,750 from the previous week. Still, the number of new requests remained above 600,000 for nearly 3 months

Prices continued to climb in early trading May 1, "driven by increased optimism that the global economy and fuel demand will recover soon," said analysts at Pritchard Capital Partners LLC in New Orleans. Industrial output in Japan increased for the first time in 6 months, while UK consumer confidence climbed to the highest level in a year."

The US Department of Commerce reported US consumers reduced spending that drives two thirds of the economy's activity in normal times. US consumer spending in March dropped 0.2% percent after 2 monthly increases as income levels fell.

US manufacturing activity contracted at a slower-than-expected pace in April, according to figures from a private trade group that suggest the economic decline may be moderating. The performance was driven by a rise in new orders.

The Institute for Supply Management, a trade group of purchasing executives, said May 1 its manufacturing index rose to 40.1 in April from 36.3 in March. A reading below 50 indicates a contraction; this marked the 15th consecutive month of contraction in the manufacturing.

Nevertheless, Raymond James analysts said oil prices continue to be supported by optimism in the broader market. Gas prices fell 1% after the EIA inventory reported that morning an injection of 82 bcf into US storage, the later released its 914 data confirming general assessment that onshore production has not yet peaked.

The flu factor
The market seems to have shrugged off the potential effects of the flu to reduce demand for jet fuel for international travel.

Neither the US Centers for Disease Control and Prevention nor the World Health Organization has advised travel restrictions other to ask people who are ill or developing symptoms to delay international travel.

The Offshore Technology Conference will continue as planned May 4-7 in Houston, said OTC management. Still, they are "taking precautions" by providing hand-sanitizer stations at the event and encouraging attendees to practice healthy habits.

Nevertheless, the Brazil-Texas Chamber of Commerce said Jose Sergio Gabrielli, chief executive of Petroleo Brasilerio SA (Petrobras), has cancelled his planned flight to OTC to accept an award because of the flu. "Reportedly, most of the Petrobras delegation was canceling the trip for the same reason," said Chamber officials.

Energy prices
The June contract for benchmark US sweet, light crudes gained 15¢ to $51.12/bbl Apr. 30 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., increased the same amount to the same price. The July crude contract was up 7¢ to $52.28/bbl on NYMEX. Heating oil for May delivery dropped 1.44¢ to $1.31/gal The same month contract for reformulated blend stock for oxygenate blending (RBOB) gained 2.58¢ to $1.47/gal.

The June contract for natural gas lost 3¢ to $3.37/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 17.5¢ to $3.25/MMbtu.

In London, the June IPE contract for North Sea Brent inched up 2¢ to $50.80/bbl. Gas oil for May increased 50¢ to $428/tonne.

Contact Sam Fletcher at [email protected].