MARKET WATCH: Lower crude inventory boosts prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 20 -- Crude prices shot up Feb. 19 in the biggest 1-day gain since 2008, carrying petroleum products with it, after government officials reported the first drop in US crude inventories this year.

"For the first time in months, we have seen positive inventory data for crude," said analysts at Pritchard Capital Partners LLC in New Orleans. "This is the third time crude has tested the $35/bbl price level and bounced. The price action of crude and inventory data imply the [production cuts by the Organization of Petroleum Exporting Countries] are beginning to work." The current crude trading range appears to be $35-45/bbl, they said.

The Energy Information Administration reported commercial US crude dipped by 200,000 bbl to 350.6 million bbl in the week ended Feb. 13—still above average for this time of year (OGJ Online, Feb. 19, 2009). The Wall Street consensus was for an increase of 3.2 million bbl of crude.

The front-month natural gas contract, however, lost money on the New York market when EIA reported the withdrawal of 24 bcf of natural gas from US underground storage during the same week. It was far short of expectations of a 50 bcf draw. There is now just less than 2 tcf of working gas in storage, 177 bcf more than at this time last year, and 155 bcf above the 5-year average. With so much gas still in storage "in the middle of peak winter demand," Pritchard Capital Partners noted, "Huge concern remains as to where natural gas supply will go once home heating demand declines in early spring."

Raymond James analysts said, "Things are getting a lot uglier a lot faster than we thought in natural gas land. If we continue to kill the rig count, can the over-supply problem still be fixed by summer? We still don't think so."

Meanwhile, Pritchard Capital analysts said, "The major fiscal stimulus worldwide is likely to be inflationary and good news for commodities once the dust settles in the financial system. We think Chinese demand will remain the overriding issue for commodities in the next several years."

Crude inventories at the key Cushing, Okla., delivery point remained flat Feb. 13 while oil stocks along the US Gulf Coast increased by 2.1 million bbl. "But we keep in mind that the deliveries to the Strategic Petroleum Reserve will increase during March and should eat into either the US Gulf Coast stocks or the floating storage stocks," said Olivier Jakob at Petromatrix, Zug, Switzerland.

Meanwhile, the 4-week average US demand for gasoline average "is now flat to last year (on the revised basis) and gasoline 'implied demand' is up by 0.8%," Jakob said, adding, "With the Federal Highway Administration showing an improvement in the decline of Vehicles Miles Driven in December (the Northeast was actually up 0.5% vs. a year ago) but also with MasterCard [Spending Pulse] apparently showing the sales at the pump to be up 1% in the 4 weeks to Feb. 13, we will now have as a base case that the decline in US gasoline demand has bottomed," Jakob said.

Energy prices
The March contract for benchmark US light, sweet crudes shot up $4.86 to $39.48/bbl Feb. 19 on the New York Mercantile Exchange. The April contract gained $2.77 to $40.18/bbl. The March contract expires with the close of trading Feb. 20, and the April contract moves to the front position. Subsequent monthly contracts also posted gains Feb. 19 and remain in contango. On the US spot market, West Texas Intermediate at Cushing was still tracking the March contract, up $4.86 to $39.48/bbl.

Heating oil for March delivery advanced 5.76¢ to $1.20/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) increased 3.36¢ to $1.10/gal.

Natural gas for the same month fell, however, down 13.6¢ to $4.08/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rebounded, up 12.5¢ to $4.42/MMbtu.

In London, the April IPE contract for North Sea Brent crude gained $2.44 to $41.99/bbl. Gas oil for March was up $5.50 to $370.75/tonne.

The average price for OPEC's basket of 12 reference crudes increased 50¢ to $38.64/bbl on Feb. 19.

Contact Sam Fletcher at [email protected].