MARKET WATCHEnergy prices mixed in directionless markets

March 21, 2007
The expiring April crude contract regained a few cents but prices for subsequent months declined Mar. 20 in a reversal of the previous session's outcome in the New York futures market.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 21 -- The expiring April crude contract regained a few cents but prices for subsequent months declined Mar. 20 in a reversal of the previous session's outcome in the New York futures market.

Analysts in the Houston office of Raymond James & Associates Inc. reported crude prices were up in early trading Mar. 21 in New York, with the May crude contract now in the front-month position. Providing support for crude prices is the seasonal turnaround at refineries that has constrained utilization, Raymond James analysts reported.

"The crude oil flat price has been recently kept under a lid with the negative influence of a disconnected April-May spread trading in an extreme contango and weak overall equity markets," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Expiration of the April contract at the close of the Mar. 20 session "will give back some breathing space to the market and equities have now managed to rebound from the lows. The 9% loss on the Shanghai stock exchange sent worldwide shivers at the end of February, so it is worthwhile to note that it is now more discretely printing a new historic high," he said.

"Asian growth has not slowed down," Jakob said, noting news reports that China will be ready next month to begin filling its Zhousan strategic petroleum reserve. Chinese officials have said they want a strategic reserve of 100 million bbl of crude, which would amount to a 20-day emergency supply. It would take 2½ years to stockpile that amount at a fill rate of 100,000 b/d. "The combination of SPR fills in the US and China should be a key demand factor over the next 2 months," said Jakob. "The dollar weakness continues to support overall commodities, and gold is back to testing the $660/oz level." The March gold contract closed at $657.90/troy oz, up $4.80 for Mar. 20 on the New York Mercantile Exchange.

US inventories
The Energy Information Administration reported Mar. 21 that commercial US crude inventories rose by 4 million bbl to 329.3 million bbl in the week ended Mar. 16. Gasoline stocks dropped 3.4 million bbl to 210.5 million bbl. Distillate fuel inventories declined by 1.7 million bbl to 118.7 million bbl. Most of the distillate decline was in diesel; heating oil also declined, but by a much smaller amount. Propane and propylene inventories fell by 1.8 million bbl to 25.9 million bbl during that same period.

Imports of crude into the US increased by 616,000 b/d to more than 10.4 million b/d that same week. The input of crude into US refineries increased by 197,000 b/d to 14.8 million b/d with units operating at 86.3% of capacity, up from 85.6% the prior week. Gasoline production increased slightly to 8.8 million b/d, while distillate fuel production increased more substantially to 4.1 million b/d.

"Last year refinery utilization averaged 86% in March before rising to 89% in April as refiners completed switchovers from heating oil production to gasoline production," said Raymond James analysts.

Energy prices
The expiring April contract regained 14¢ to $56.73/bbl Mar. 20 on NYMEX, while the May contract dropped 45¢ to $59.25/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 14¢ to $56.74/bbl. Heating oil for April delivery lost 1.97¢ to $1.67/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) fell 1.6¢ to $1.94/gal.

However, the April natural gas contract gained 6.3¢ to $6.91/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., escalated 7¢ to $6.80/MMbtu. "As a result of last week's warm weather, tomorrow's natural gas withdrawal number is expected to be weak (we are anticipating a withdrawal of 2-12 bcf). However, we still believe there is good visibility that storage will end the winter at 1.45 tcf," said Raymond James analysts.

In London, the May IPE contract for North Sea Brent crude lost 32¢ to $60.20/bbl. The April gas oil contract fell by $2.75 to $529.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes dipped 13¢ to $56.49/bbl on Mar. 20.

Contact Sam Fletcher at [email protected].