MARKET WATCH: Brent price climbs; WTI price dips

North Sea Brent closed higher Apr. 5 for the fourth consecutive session, up nearly 1% to more than $122/bbl despite a brief sell-off following an interest rate hike in China.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 6 -- North Sea Brent closed higher Apr. 5 for the fourth consecutive session, up nearly 1% to more than $122/bbl despite a brief sell-off following an interest rate hike in China.

Meanwhile, West Texas Intermediate dipped marginally on the New York Mercantile Exchange ahead of weekly US inventory reports, widening the spread between Brent and WTI. “Products generally followed Brent and moved higher. The term structures for both WTI and Brent weakened,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

“Natural gas fell almost 1.5% on forecasts for milder weather,” said analysts in the Houston office of Raymond James & Associates Inc. Gas continued its decline in early trading Apr. 6, while crude prices rose with WTI climbing above $109/bbl at one point in the New York market, the highest intraday front-month crude contract price since September 2008.

The gas market “turned its focus away from the early spring weather support to more towards the low-demand shoulder period,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Milder weather outlook over the coming weeks will keep the prices under pressure; and towards the end of April, the expectations of hotter or cooler summer should gradually start to get priced in.”

Zhang reported, “China raised its benchmark 1-year deposit rate by 25 basis points (bps), to 3.25%, and the 1-year lending rate also by 25 bps, to 6.31%. It’s the second time this year that the People's Bank of China hiked the benchmark interest rate in order to tame domestic inflation. Oil was sold off on the news but recovered quickly.”

However, he said, “Our research reveals that the effect of China’s monetary tightening on oil prices should be fairly benign. Currency devaluation and increasing reserve requirements appear to have no discernible impact. Credit rationing and higher interest rates seem to have some effect but relatively minor when compared to their impact on other commodities.”

The market expects the European Central Bank (ECB) to raise its benchmark interest rate at its Apr. 7 meeting, the first hike since May 2009. “It’s likely the oil market has already priced in the ECB rate increase on tomorrow’s meeting,” Zhang said. “Nevertheless, there is still a possibility that oil price may react negatively to the news. With the US Federal Reserve still on the path of accommodative monetary policy, any sell-off on the ECB’s rate increase may be short-lived.”

In mid-2008, Jean-Claude Trichet, ECB president, “surprised everybody by announcing a 0.25% increase in interest rates for July of that year,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “That led to a $16/bbl crude oil rally in about 24 hours of trading. What is interesting is that the $16/bbl Trichet rally of 2008 was triggered when Brent was at $122/bbl. Tomorrow, the ECB is very likely to increase rates while Brent is [again] at $122/bbl.”

Jakob said, “Central bankers will always claim that they have no influence on oil prices, but recent history has repetitively shown that in the new world where commodities are a global asset, central bankers can have a greater influence on oil prices than the Organization of Petroleum Exporting Countries.”

Meanwhile, he said, “Volume in WTI crude oil futures [is] still relatively low but volume in Brent has been stable and as a result for the last 2 days we are trading in an unusual environment where volume on ICE Brent is at par to the volume on NYMEX WTI.

“The European global economic situation is, however, different in 2011 than in 2008, and with the 5-year yields on Portuguese bonds now over 10%, it is becoming more and more certain that Portugal will have to be bailed out.”

He said, “Technically, the action is in Brent…. Brent is printing higher highs and higher lows, higher close, support on the 5-day moving average, the 5-day moving average trending above the 9-day moving average. The technical momentum in Brent is positive, and there is a lack of formal resistance lines until $125/bbl.”

In other news, Jakob said, “Until some light starts to appear out of the Libyan mess, light and sweet crude oil should keep its quality premium, but with the higher flat price we are, in our opinion, getting deeper into the area where the capping factor becomes the lost demand to the higher prices.”

US inventories
The Energy Information Administration said Apr. 6 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. Gasoline stocks dropped 400,000 bbl to 216.7 million bbl during that 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.

The American Petroleum Institute earlier reported US crude stocks were down 2.8 million bbl to 354.3 million bbl in the latest week. It said gasoline inventories increased 568,000 bbl to 220.98 million bbl, while distillate stocks declined 1 million bbl to 153.9 million bbl.

Crude imports into the US dropped 178,000 b/d to 9 million b/d last week. In the 4 weeks through Apr. 1, crude imports averaged 8.9 million b/d, down 175,000 b/d from the comparable period in 2010. Total gasoline imports averaged nearly 1.1 million b/d last week while distillate fuel imports averaged 13,000 b/d.

Input of crude into US refineries was increased 39,000 b/d to 14.4 million b/d last week, with units operating at 84.4% of capacity. Gasoline production increased to 8.8 million b/d, while distillate fuel production increased to 4.3 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes declined 13¢ to $108.34/bbl Apr. 5 on NYMEX. The June contract dipped 6¢ to $108.99/bbl. On the US spot market, WTI at Cushing, Okla., was down 13¢ to $108.34/bbl.

Heating oil for May delivery increased 1.36¢ to $3.19/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month escalated 3.25¢ to $3.20/gal.

The May natural gas contract dropped 5.8¢ to $4.23/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 1¢ to $4.24/MMbtu.

In London, the May IPE contract for North Sea Brent crude rose $1.16 to $122.22/bbl. Gas oil for April increased $12.75 to $1,021.50/tonne.

The average price for OPEC’s basket of 12 reference crudes climbed by $1.53 to $116.60/bbl.

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