MARKET WATCHCrude price climbs for sixth session

March 1, 2007
A 5-week rally continued Feb. 28 with crude futures prices rising for six consecutive sessions, led by strong gasoline positions on the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 1 -- A 5-week rally continued Feb. 28 with crude futures prices rising for six consecutive sessions, led by strong gasoline positions on the New York market.

Rising energy prices in February wiped out previous market losses in early January, with February headed "for a new all-time high for any month" in demand for crude, said Paul Horsnell at Barclays Capital Inc., London. A tightening world market "where demand is speeding up while supply is slowing down" has changed oil from the commodity "most affected by macroeconomic fears" into "one of the more resilient," Horsnell said.

Record February demand
"The level of total US oil demand is currently averaging 21.84 million b/d for February," Horsnell reported Mar. 1. "Year-over-year growth in total demand for February is currently running at nearly twice the level of the largest total negative demand revision ever made [by the Department of Energy], (which for the record was for the rather unusual data dynamics of December 2001), and hence it seems fair to expect that the majority of the current 7.5% growth would be likely to survive the later revisions (which are due first in April this year and then in June 2008).

"More than 1 million b/d of the February demand growth has come from the main products rather than the more volatile 'other oils' category, and the broad base of the growth again leads us to expect that in the final statistical record February will go down as a month of remarkably strong overall demand growth," he said.

The market was boosted by a bullish report by the Energy Information Association that commercial US gasoline stocks declined for the third consecutive week, down 1.9 million bbl to 220.2 million bbl in the week ended Feb. 23. Distillate fuel inventories dropped 3.8 million bbl to 124.5 million bbl. Crude inventories, however, gained 1.4 million bbl to 329 million bbl (OGJ Online, Feb. 28, 2007).

Imports of crude into the US were down by 220,000 b/d to 9.5 million b/d that week, partly because lightering operations were disrupted by fog along the Houston Ship Channel. However, the input of crude into US refineries increased by 196,000 b/d to 14.6 million bbl with units operating at 86% of capacity. Gasoline production increased slightly to 8.7 million b/d; distillate fuel production increased to 3.9 million b/d.

"Overall US stocks (including propane) have drawn down 42 million bbl over the last month and are now 23 million bbl below last year. Excluding propane, stocks have drawn down 22 million bbl over the month and are 16 million bbl below last year," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

The latest 4-week average of crude imports into the US was 390 million b/d lower than in the same period last year, while gasoline imports were down by 266 million b/d. The 4-week average of gasoline production was up by 328 million b/d from a year ago when refinery runs were still recovering from damage by Hurricanes Katrina and Rita. The resulting imbalance of lower imports and higher demand resulted in a gasoline stock draw of 4.4 million bbl over the latest 4-week period, compared to builds of 3.5 million bbl in February 2006 and 7.1 million bbl in February 2005, Jakob said.

Energy prices
The April contract for benchmark US sweet, light crudes bounced between $59.92-62.10/bbl Feb. 28 before closing at $61.79/bbl, up 33¢ for the day on the New York Mercantile Exchange. That contract has "found a very strong floor at $60/bbl, and apart from natural gas, the energy complex remains in a positive momentum," said Jakob. He sees support for the April crude contract at $60.50/bbl on a 10-day moving average. "For resistance, the first level is the previous high of $62.25/bbl and after that we do not define significant resistance levels until $64/bbl," he said.

The May contract gained 44¢ to $63.06/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 33¢ to $61.80/bbl. The expiring March contract for heating oil inched up 0.11¢ to remain basically unchanged at $1.78/gal on NYMEX. The expiring March contract for reformulated blend stock for oxygenate blending (RBOB) bumped up by 3.15¢ to $1.85/gal. "Gasoline continues to lead the oil complex. With further gains in the gasoline crack as well as the refinery margins well supported, crude oil remains on the positive track," said Jakob.

The April natural gas contract fell by 23.3¢ to $7.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 23¢ to $7.21/MMbtu. "Warmer temperature forecasts engrossing much of the US have hampered natural gas prices, sliding lower each day this week," said analysts in the Houston office of Raymond James & Associates Inc.

In London, the April IPE contract for North Sea Brent crude gained 53¢ to $61.89/bbl. "Brent crude oil continues to outperform WTI both on a flat price and a spread basis as WTI is capped by the buying of gasoline cracks (buying gasoline/selling crude)," Jakob said. The March gas oil contract lost $5.50 to $538/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes dropped 52¢ to $56.57/bbl Feb. 28.

Contact Sam Fletcher at [email protected].