MARKET WATCHGasoline futures price at 17-month high

Crude prices dipped but gasoline futures climbed to the highest level in more than 7 months Apr. 5 as market attention wandered from possible disruption of Middle East supplies to summer demand for gasoline.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 9 -- Crude prices dipped but gasoline futures climbed to the highest level in more than 7 months Apr. 5 as market attention wandered from possible disruption of Middle East supplies to summer demand for gasoline.

Electronic and floor trading was closed in the US and UK markets Apr. 6 because of the Good Friday religious holiday.

"The oil market has shifted its attention away from large-scale supply disruptions and back on the US' robust gasoline demand," said analysts in the Houston office of Raymond James & Associates Inc. "Last week's Department of Energy report showed continued strength in the US demand for gasoline. Gasoline inventories in the US have now declined for 8 consecutive weeks, and demand is currently 1.7% higher, over a 4-week period, than last year," they said (OGJ Online, Apr. 4, 2007).

Energy prices
The May contract for benchmark US light, sweet crudes dropped 10¢ to $64.28/bbl, Apr. 5 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 10¢ to $64.29/bbl. Heating oil for May delivery on NYMEX slipped 35¢ to $1.86/gal on NYMEX. However, the May contract for reformulated blend stock for oxygenate blending gained 2.34¢ to $2.13/gal, the highest closing for a front-month RBOB contract since Aug. 31.

The May natural gas contract escalated by 9.2¢ to $7.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 7¢ to $7.53/MMbtu. Composite spot gas prices gained 6.8% last week while WTI spot crude oil prices retreated 2.5%.

Colder-than-normal temperatures are expected across much of the US this week. With the rapid dissipation of an earlier El Niño effect, Colorado State University's weather forecast team also is now calling for 17 named storms in the 2007 hurricane season.

"Speculative traders are still holding substantial short positions, betting that gas prices will fall in the near term," said analysts at Enerfax Daily. "Most traders are looking to sell the front-end of the curve and looking to add length to the futures contract. It doesn't pay to be long up front since the risk/reward is flat to short right now. Heating requirements will average 63% higher than normal in the Midwest through Apr.12, and demand in the Northeast will surpass normal by 55%.

"Production in the Gulf of Mexico fell 14% in 2006 from 2005, after adjusting for hurricanes. Total US output was little changed, up 0.6% in 2006 vs. 2005 once the effect of hurricanes is stripped out."

Raymond James analysts said, "On Apr. 6, the US set a new daily record for LNG imports, importing 3.4 bcf. The Lake Charles terminal imported 1.9 bcf, which is 17 times more than 2006's daily average. Currently, due to the strong natural gas price environment in the US, LNG exporters are receiving as much as $3.50/MMbtu more to deliver to the US vs. Europe."

In London, the May IPE contract for North Sea Brent crude lost 16¢ to $68.24/bbl. During the short trading week as a whole, WTI lost $1.59/bbl compared with a gain of 14¢/bbl for Brent. "Brent is at $68.24/bbl and with WTI normally trading at a premium to Brent, this would in normal circumstances put WTI slightly below $70/bbl, which is the level indicated by our model. Making for those adjustments, we would therefore conclude that WTI remains currently fairly valued vs. speculative investment," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 42¢ to $63.31/bbl on Apr. 4, the last date reported by the cartel.

Contact Sam Fletcher at samf@ogjonline.com.

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