MARKET WATCH: Surprise gasoline demand hikes energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 26 -- The front-month crude contract jumped above $42/bbl and petroleum product prices continued to climb Feb. 25 in the New York futures market after the government reported an unexpected large drop in US gasoline inventories.

The Energy Information Administration said gasoline stocks dropped 3.4 million bbl to 215.3 million bbl in the week ended Feb. 20. The consensus among Wall Street analysts was for virtually no change. Commercial US crude inventories increased just 700,000 bbl to 351.3 million bbl in the same period, well below the 1.3 million bbl gain that analysts expected (OGJ Online, Feb. 25, 2009).

EIA reported US gasoline consumption was up 1.7% over the past 4 weeks from year-ago levels.

The price of crude continued to climb in premarket trading Feb. 26 as the Labor Department reported first-time requests for unemployment jumped by 36,000 to 667,000 in the past week, surprising analysts who were expecting a slight drop. That was the largest number of new claims since October 1982. More than 5.1 million US residents are now receiving unemployment benefits, with another 1.4 million under an extended unemployment compensation program approved by Congress last year.

"Yes, unemployment is high, but the lower gasoline prices seem to finally have an impact, and with jet [fuel] demand down 15.4% (237,000 b/d) it does seem that Americans are back to driving rather than flying," said Olivier Jakob at Petromatrix, Zug, Switzerland. He said, "2008 was the year of distillate vs. gasoline, and it looks more and more that 2009 will be that of gasoline vs. distillate. In that regard we need to keep in mind that refineries are currently on maintenance and that it is not unusual to have all sort of glitches when the units are brought on line."

In New Orleans, Pritchard Capital Partners LLC analysts said, "If gasoline price response continues, gasoline demand may push utilization up and continue to support crude prices and even pull some crude out of storage and reduce contango spreads seen across curve."

With members of the Organization of Petroleum Exporting Countries in unusually high compliance on their production cuts, Jakob said, "The trend of rising [crude] stocks in the US is starting to peak and reverse. With a [North Sea] Brent contango now close to $1/bbl, we believe that the peaks of stock buildings in Europe have also been reached, and we would not be surprised if some of the crude oil stocks that have been hidden in some emerging economies are also starting to be gradually reduced."

Energy prices
The April contract for benchmark US sweet, light crudes escalated by $2.54 to $42.50/bbl Feb. 24 on the New York Mercantile Exchange. The May contract gained $1.90 to $44.66/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $3.54 to $42.50/bbl as it caught up with the April NYMEX contract. Heating oil for March delivery increased 2.95¢ to $1.24/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) advanced 8.3¢ to $1.17/gal.

Natural gas for the same month dropped 18¢ to $4.06/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3¢ to $4.21/MMbtu. EIA reported the withdrawal of 101 bcf of natural gas from US underground storage in the week ended Feb. 20. That left 1.9 tcf of working gas in storage, 233 bcf more than in the same period a year ago and 199 bcf above the 5-year average.

In London, the April IPE contract for North Sea Brent crude gained $1.79 to $44.29/bbl. Gas oil for March was up $4 to $376.75/tonne.

The average price for OPEC's basket of 12 reference crudes increased by $1.55 to $40.50/bbl on Feb. 25.

Contact Sam Fletcher at [email protected].