MARKET WATCH: Crude prices rebound with supply disruptions

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 19 -- Prices for crude and petroleum products rebounded May 18, wiping out recent losses in many cases, on news of a refinery explosion in Pennsylvania and attacks on oil facilities in Nigeria.

Sonoco Inc. on May 18 extinguished a fire at its 175,000 b/d refinery at Marcus Hook, Pa., following a May 17 explosion. Authorities are assessing the damage and investigating the cause of the explosion. The company has not said how much production may be disrupted or for how long.

In Nigeria, the militant Movement for the Emancipation of the Niger Delta claimed to have blown up two oil pipelines in the delta area and said its members will block waterways to disrupt oil exports.

Meanwhile, the US dollar fell in value against a basket of currencies, contributing to the rise in energy prices.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "We continue to hold a risk premium for Nigeria. Another camp was razed by the military yesterday, and in this crisis environment it will be much harder to hold a short position over the weekend and even more so over an extended weekend as the one concluding this week." Energy markets will be closed May 25 for Memorial Day.

"Crude jumped nearly 5% to close at a 6-month high against the backdrop of a powerful broader market rally," said analysts in the Houston office of Raymond James & Associates Inc. Natural gas increased 1%, "closing in the green for the first time in nearly a week," analysts said. However, both crude and gas were flat in early trading May 19. Premarket, both crude and natural gas are trading flat.

Jakob said, "The oil rebound…was of course not only a correlation to equities. That correlation has been driving crude oil for many weeks, but since last week oil is starting to trade a bit more on its own fundamental input as we exit the shoulder period of demand and start to enter the gasoline season." He said, "Gasoline has been the leader of the energy complex last week and continues to do so with the weekend fire at Marcus Hook causing the shutdown of the refinery's FCC."

Costanza Jacazio and Amrita Sen, Barclays Capital, analysts in the investment banking division of Barclays Bank PLC, reported May 19: "Over the past two quarters, oil prices fell to levels that, in our view, were far too low for longer-term market equilibrium. They also fell far below the range of levels that the back of the oil price curve has been pointing to as sustainable longer-term averages. At some point, the discrepancy between the weak present and the stronger future needs to be resolved through a flattening of the curve. With longer-term supply prospects from non-OPEC areas in particular coming under a broader consensus of doubt, the bulk of that flattening is likely to be achieved by higher prompter prices."

They said, "With prices having to try to clear the short-term market without tightening the longer-term market too catastrophically, the result has been a period during which rising prices and rising inventory cover have coexisted. Rather than that being any violation of fundamentals, it is instead the result of one of the most important fundamentals, namely that the dynamics of the medium and long-term oil market are such that prices of $40/bbl and $50/bbl leave the market dangerously far from equilibrium."

In other news, alternative fuels manufacturers apparently can't survive falling prices. Raymond James dropped its coverage of Pacific Ethanol Inc. after that firm recently filed for bankruptcy protection. "This was the last ethanol stock under our coverage following the bankruptcies of VeraSun Energy Corp. and Aventine Renewable Energy Inc. over the past 6 months," said Raymond James analysts. "Within the broader biofuels arena, our sole covered stock is now GreenHunter Energy Inc., a biodiesel producer that is currently facing much the same liquidity troubles as its ethanol peers."

Energy prices
The June contract for benchmark US sweet, light crudes jumped $2.69 to $59.03/bbl May 18 on the New York Mercantile Exchange. That contract expires May 19 at the close of the regular NYMEX session. Meanwhile on the spot market, West Texas Intermediate at Cushing, Okla., continued trailing the front-month NYMEX contract, down the same amount to the same price. The July crude contract climbed by $2.59 to $59.59/bbl on NYMEX. Heating oil for June increased 5.69¢ to $1.48/gal. The June contract for reformulated blend stock for oxygenate blending (RBOB) bounced back 7.75¢ to $1.76/gal.

Natural gas for the same month regained 4.1¢ to $4.14/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 2.5¢ to $4.03/MMbtu.

In London, the July IPE contract for North Sea Brent crude was up $2.49 to $58.47/bbl. Gas oil for June lost $1.25 to $466.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped 51¢ to $55.86/bbl on May 18.

Contact Sam Fletcher at [email protected].