MARKET WATCH: Oil, gas traded flat awaiting government guidance

Front-month oil and natural gas contracts lost only a few pennies Apr. 26 as traders awaited the latest report on US inventories and an unprecedented press conference by Ben S. Bernanke, chairman of the Federal Reserve board of governors, at the Apr. 27 conclusion of a meeting of Fed policymakers.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 27 -- Front-month oil and natural gas contracts lost only a few pennies Apr. 26 as traders awaited the latest report on US inventories and an unprecedented press conference by Ben S. Bernanke, chairman of the Federal Reserve board of governors, at the Apr. 27 conclusion of a meeting of Fed policymakers.

“Energy prices remained elevated,” said analysts at Standard New York Securities Inc., the Standard Bank Group. “Brent crude front-month prices are finding support just above $123/bbl. Speculative length remains very high in the crude oil market. The market seems unwilling to hold onto short positions for long given the risk of political tension spreading.” They said, “The rise in oil prices is clearly driven by supply-side fears and not growing demand.”

The price spread between North Sea Brent and West Texas Intermediate “is still wide ($10-plus) as inventory levels in Cushing, Okla., remain high,” said Standard Bank analysts. “In general inventories remain seasonally high not only in the US but in Organization for Economic Cooperation and Development countries. As with the rest of the commodity complex, concern remains over China's tightening of monetary policy.”

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. reported, “Another slew of favorable earnings reports boosted the broader market yesterday, pushing the Dow Jones Industrial Average and the Standard & Poor's 500 Index up 1% to multiyear highs. Energy stocks also moved with quarterly reports closing up on the day.”

Market anxieties that expensive fuel will stunt global economic growth “even overlooked the support from improving consumer sentiment,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The US consumer confidence index increased to 65.4 from March’s 63.8 level while the economists were expecting that the index would rise to 64.5,” he said.

Gas prices were little changed “despite moderating weather in the South as warmer-than-normal temperatures are moving north and are expected to hit the Northeast later this week,” said Sharma. “The below-normal injections have been keeping prices relatively propped up so far during the current shoulder period. However, natural gas is likely come under pressure once again next week when the current wave of regional weather patterns dissipates.”

Olivier Jakob at Petromatrix, Zug, Switzerland, noted, “With gasoline remaining well supported, the US gasoline prices at the pump will start to average very close to $4/gal, and politicians seeking reelection are moving deeper into panic mode. President [Barack] Obama, who last week made a statement that oil markets were very well supplied and high prices [were] the result of speculation, stated yesterday that oil producers needed to increase supplies and that the US was ‘in a lot of conversations with major oil producers like Saudi Arabia.’”

Jakob pointed out, “There are not many producers with spare capacity apart from Saudi Arabia (and unfortunately that country has been cutting production at $120/bbl), but we can indeed imagine that there are a lot of discussions between the US and Saudi Arabia and not only about oil.”

US inventories
The Energy Information Administration said Apr. 27 domestic US benchmark crude inventories jumped by 6.2 million bbl to 363.1 million bbl in the week ended Apr. 22, more than making up the previous week’s draw. Gasoline stocks continued falling, however, down 2.5 million bbl to 205.6 million bbl. Both finished gasoline and blending components were down. The decline in distillate fuel inventories was extended, down 1.8 million bbl to 146.5 million bbl in the latest week.

The American Petroleum Institute earlier reported a 4.9 million bbl increase in crude stocks to 361 million bbl in the same period. It said gasoline inventories dropped 2.1 million bbl to 210.6 million bbl, while distillate fuel stocks gained 1.5 million bbl to 148.4 million bbl.

Imports of crude into the US increased 1.2 million b/d to 9.3 million b/d in the latest week, EIA reported. In the 4 weeks through Apr. 22, US crude imports averaged 8.7 million b/d, down 724,000 b/d from the comparable period a year ago. Gasoline imports averaged 1.1 million b/d; distillate fuel imports averaged 121,000 b/d.

The input of crude into US refineries dipped by 27,000 b/d to 14.1 million b/d last week with units operating at 82.7% of capacity. Gasoline production decreased to 8.8 million b/d while distillate fuel production declined to 4.1 million b/d.

Energy prices
The June contract for benchmark US light, sweet crudes dropped 7¢ to $112.21/bbl on the New York Mercantile Exchange. The July contract was down 4¢ to $112.71/bbl. On the US spot market, WTI at Cushing fell 67¢ to realign with the closing price of the front-month futures contract at $112.21/bbl.

Heating oil for May delivery increased 2.91¢ to $3.21/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 3.43¢ to $3.36/gal.

The May natural gas contract dipped 0.2¢ but the closing price essentially was unchanged at a rounded $4.39/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3.8¢ to $4.33/MMbtu.

In London, the June IPE contract for North Sea Brent crude gained 48¢ to $124.14/bbl. Gas oil for May escalated by $8.50 to $1,017.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 42¢ to $118.96/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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