MARKET WATCH: Crude climbs to 30-month high; gas falls to 3-week low

The price of the front-month crude contract climbed to a 30-month high Apr. 6 in the New York market, while near-month natural gas dropped for the fourth consecutive session and scraped a 3-week low at closing.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 7 -- The price of the front-month crude contract climbed to a 30-month high Apr. 6 in the New York market, while near-month natural gas dropped for the fourth consecutive session and scraped a 3-week low at closing.

Reports of increased missions over Libya by aircraft from members of the North Atlantic Treaty Organization more than offset a bearish inventory report, said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas fell 2% as forecasts for mild weather in coming weeks tempered demand expectations. While the broader [equity] market inched modestly higher to surpass recent highs, energy stocks underperformed,” they said.

The price of gas was down while crude and broader market prices increased in early trading Apr. 7, they said.

“Oil seemed in consolidation mode yesterday, with some mild selling pressure after the weekly inventory report,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

US inventories
The Energy Information Administration reported Apr. 7 the withdrawal of 45 bcf of natural gas from US underground storage in the week ended Apr. 1, below the Wall Street consensus of a 51 bcf pull. That reduced working gas in storage to 1.6 tcf, down 86 bcf from a year ago at this time but 10 bcf above the 5-year average.

EIA earlier said commercial US benchmark crude inventories increased by 2 million bbl to 357.7 million bbl in the week ended Apr. 1, matching the Wall Street consensus for that commodity. Gasoline stocks dropped 400,000 bbl to 216.7 million bbl in the same period, far short of analysts’ expectations of a 1.9 million bbl draw. Finished gasoline inventories decreased while blending components stocks increased last week. Distillate fuel inventories gained 200,000 bbl to 153.5 million bbl. Analysts had anticipated no change in distillates (OGJ Online, Apr. 6, 2011).

Refinery runs in the Gulf Coast Petroleum Administration for Defense District (PADD 3) “soared by over 300,000 b/d” last week, “which offset losses in run rates across all other PADDs,” said Zhang. A “smaller-than-expected gasoline draw was driven by higher production, higher imports, as well as lower demand,” he said. “The implied demand for distillates also declined week-over-week. It’s reasonable to assume that high oil prices might have caused some demand destruction in gasoline and distillate.”

In addition, he noted the EIA report that crude inventories at Cushing, Okla., had dipped slightly by 16,000 bbl.

According to the EIA report, said Olivier Jakob at Petromatrix, Zug, Switzerland: “Implied demand in gasoline is down 2.5% vs. last year. As expected, the gasoline crack continued to correct lower yesterday. Overall the US stocks of crude plus clean petroleum products (CPP) increased by 2.4 million bbl, and they remain at multiyear highs for the season.”

He noted, “The US is already exporting record amounts of gasoline, and if the domestic demand falls further, US refiners along the US Gulf [Coast] will have to revise their operating schedule lower. Gasoline stocks [on the Gulf Coast] increased by 2.9 million bbl but were reduced by 2.9 million bbl in the US East Coast. Gasoline stocks both on the US Gulf and in the US East Coast are, however, at par to the levels of a year ago, the main deficit vs. last year being in the US Midwest.”

As for distillates, there is “not much to write about,” Jakob said. “The end of the winter has been warmer than normal in the Atlantic Basin and overall US distillates stocks remain plentiful.”

In other news, Zhang said China raised its domestic retail prices by 5.6% for gasoline and 4.9% for diesel following the strong rally in oil prices in the past month. “This is following the increase in February when retail prices for gasoline and diesel were hiked by 4.1% and 4.5% [respectively],” he said. “These increases will inevitably fuel the already heated inflation pressure. As China imports more than half its domestic oil consumptions, the government notes that it wants to use a pricing mechanism to drive for energy efficiency.”

Jakob said, “The average US driver might not be happy about gasoline prices at $3.80/gal, but US prices at the pump are ‘only’ 16% higher than at the start of 2008. The Chinese driver is paying today 57% more for gasoline or diesel than at the start of 2008. Compared to July 2008, when crude oil was trading at $147/bbl, the Chinese domestic price of gasoline is 35% higher and 31% higher for diesel. Sales of cars in China during February were disappointingly low, and we will be watching for the March numbers.”

In Europe, Jakob said, “Portugal finally stopped pretending that it is different than Greece and Ireland and is going for the bail-out package. The main focus for today, however, will be on the European Central Bank and the decision it takes on rates. An increase of 0.25% is fully expected and should be priced-in; what is not clear is what will come after this 0.25% increase.”

He said, “At current crude oil prices, the risk is turning more and more to the amount of potential demand destruction.”

Energy prices
The May and June contracts for benchmark US light, sweet crudes both increased by 49¢ to $108.83/bbl and $109.48/bbl, respectively, Apr. 6 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing also was up 49¢, to $108.83/bbl.

Heating oil for May delivery continued to increase, inching up 0.62¢ to $3.19/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month, however, dropped 0.84¢, also closing at $3.19/gal.

The May natural gas contract continued to fall, down 8.5¢ to $4.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 4.5¢ to $4.19/MMbtu.

In London, the May IPE contract for North Sea Brent crude increased 8¢ to $122.30/bbl. Gas oil for April gained $4 to $1,025.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up $1.02 to $117.62/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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