MARKET WATCHCrude prices rebound prior to Nigerian election

Crude prices rebounded Apr. 20 on fears that the Apr. 21 presidential election in Nigeria might inflame political unrest that could disrupt shipments from the biggest oil producing country in Africa.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 23 -- Crude prices rebounded Apr. 20 on fears that the Apr. 21 presidential election in Nigeria might inflame political unrest that could disrupt shipments from the biggest oil producing country in Africa.

As feared, the opposing party rejected the results of that election after international groups that monitored the election reported ballot shortages and allegations of vote rigging. "With over a quarter of Nigeria's crude production offline due to militant attacks, the violence associated with the recent presidential election has done nothing to calm the world's supply disruption fears," said analysts at the Houston office of Raymond James & Associates Inc.

Moreover, refinery workers in Belgium are threatening to shut down four refineries with a combined capacity of more than 600,000 b/d in a wage dispute. "With US gasoline inventory days of supply at the lowest levels in two decades, any further shutdowns in refinery capacity could have a serious effect on US gasoline prices. Currently, US gasoline inventory levels are 5% below their 5-year average, and many analysts are expecting [the report of] another draw in gasoline inventories this week, which would mark the 11th straight week of withdraws," said Raymond James analysts.

"From now on, weather should not have any more impact on prices," said analysts at the Société Générale Group (SGG). "Temperatures [are] above normal in the US and much above normal in Europe for this week. Crude supply remains flat while demand from refiners is increasing. Some consultants suggest OPEC supply has dropped another 200,000 b/d in April. We expect the US [refinery] utilization rate to jump above 91% in this week's report," they said.

Energy prices
The May contract for benchmark US light, sweet crudes jumped by $1.55 to $63.38/bbl Apr. 20, wiping out the previous day's loss on the New York Mercantile Exchange. The June contract increased by 79¢ to $64.11/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.55 to $63.39/bbl. The May contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 4.86¢ to $2.14/gal on NYMEX. Heating oil for the same month gained 2.67¢ to $1.83/gal.

The May natural gas contract dropped 11.1¢ to $7.38/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., fell 22¢ to $7.29/MMbtu. "Recently, investors have become increasingly concerned about the US natural gas supply-demand dynamics on tap for the summer. Despite difficult year-to-year weather comparisons, we believe that tightening supply-demand fundamentals should yield a more bullish summer-ending storage scenario (approximately 3.1 tcf) vs. current expectations," Raymond James analysts said.

"While extreme volatility in weather or an active hurricane season could dramatically alter our fundamental outlook (to the bullish side), we believe the natural gas equation contains all the necessary ingredients to yield higher sustainable prices as we progress throughout 2007 and into 2008," Raymond James reported. "This means that natural gas should continue to trade, on average, at better than a 9:1 ratio with crude through Oct. 31. Overall, this should translate into a step function in higher gas prices next winter. In other words, modestly lower natural gas storage levels through the summer should set the stage for a more normalized 7:1 price ratio with crude (or better) into winter 2007-08 (i.e., gas prices of $10/Mcf if our $70/bbl crude forecast is right)," the analyst said.

In London, the June IPE contract for North Sea Brent crude increased 55¢ to $66.49/bbl. The gas oil contract for May was up $2 to $575.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crude prices gained 25¢ to $62.06/bbl on Apr. 20.

Contact Sam Fletcher at samf@ogjonline.com.

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