MARKET WATCH: Crude price closes flat in low trading volume

On Apr. 25, the first trading day in the New York market after the long Easter weekend, the front-month crude contract “hopped to a new 2½-year high on escalating tension in the Middle East and a weaker dollar before retreating to end the day flat,” said analysts in the Houston office of Raymond James & Associates Inc.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 26 -- On Apr. 25, the first trading day in the New York market after the long Easter weekend, the front-month crude contract “hopped to a new 2½-year high on escalating tension in the Middle East and a weaker dollar before retreating to end the day flat,” said analysts in the Houston office of Raymond James & Associates Inc.

Natural gas fell 0.5% on forecasts for moderate weather, they said. Crude continued its decline in early trading Apr. 26, but gas and broader market futures were up.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The further monetary tightening by China through higher capital adequacy ratios for the country’s five biggest lenders also weighed on the crude markets.” He observed, “Although the worsening situation in Syria and the ongoing conflict in Libya would keep the geopolitical risk premium embedded in prices, crude is likely to come under pressure on profit taking.”

However, Leon Westgate at Standard New York Securities Inc., the Standard Bank Group, finds the market “increasingly desensitized to the ongoing turmoil in the Middle East and North Africa (MENA).” As a result he said crude is looking towards the dollar and other exogenous factors for direction.” Westgate said, “Even ongoing post-election unrest in Nigeria has failed to register with the markets and, after rallying strongly on Apr. 20, West Texas Intermediate has since traded in a fairly narrow range.”

He added, “As far as the wider energy markets are concerned, there is essentially a battle between supply fears in the Middle East vs. the risk of demand destruction and lower economic growth from higher energy prices, and the impact from aggressive monetary tightening measures in China and the impact from what is likely to be a very slow normalization in US fiscal conditions.”

While MENA turmoil lends background support to crude oil prices, Westgate said a “deterioration in the situation” apparently is necessary to stimulate response from a market now in a “wait and see” mode. That stimulus may come from 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 the Federal Open Market Committee, the Fed’s policy-making arm, that begin today.

Westgate also noted, “Saudi Arabia has indicated that it is uncomfortable with current high oil prices, suggesting fears over demand destruction and the impact of inflation are giving them cause for concern.”

Trading volume “was extremely low” Apr. 25 with both ICE Brent and West Texas Intermediate touching record low volumes during trading sessions, said Olivier Jakob at Petromatrix, Zug, Switzerland. “Volume and volatility should come back in the second part of the week once the FOMC [meeting] is out of the way,” he said.

“On a relative value basis, the Brent premium to WTI did come off yesterday,” Jakob said. But that loss apparently was regained in overnight and early trading Apr. 26. “Gasoline continues to climb over heating oil as we approach the expiry of the May contract, its prompt backwardation increasing while heating oil remains with a large prompt contango. US refineries will go into maximum gasoline yields mode, while demand will continue to face some headwind as US average gasoline prices should average by the end of the week slightly above $3.90/gal,” he said.

In other news, Raymond James reported Holly Corp. shut down the crude unit at the west facility of its 125,000-b/d Tulsa refinery due to a mechanical failure. Repairs are expected to take several days, with crude throughput volumes cut in half in the meantime. They said, “On another note, Holly's Navajo refinery seems to be out of the line of fire—literally—as fears have subsided that it may be impacted by a fast-spreading wildfire in southeastern New Mexico.”

Energy prices
The June contract for benchmark US light, sweet crudes traded at $111.08-113.48/bbl Apr. 25 on the New York Mercantile Exchange before closing at $112.28/bbl, down just 1¢ for the day. The July contract was unchanged at $112.75/bbl. On the US spot market, WTI at Cushing, Okla., increased to $112.88/bbl on Apr. 25 from $112.29/bbl on Apr. 21.

Heating oil for May delivery dropped 1.72¢ to $3.18/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month, however, was up $1.43¢ to $3.32/gal.

The May natural gas contract dropped 2.3¢ to $4.39/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., closed at $4.36/MMbtu on Apr. 25 compared with $4.33/MMbtu on Apr. 21. “Although we might get some more support from the projected hotter-than-normal weather in the Northeast later this week, prices are likely to come under pressure as milder weather spreads across much of the country,” Sharma said. However, with US storage already 9% below last year and expected to fall further, he said, “Even a small amount of weather support starts to threaten 3.8-3.9 tcf end of October storage projections and brings the bulls back into the market.”

In London, the June IPE contract for North Sea Brent crude dropped 33¢ to $123.66/bbl. Gas oil for May was down $4.75 to $1,009.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped to $119.38/bbl on Apr. 25 from $119.46/bbl on Apr. 21. The group’s Vienna office was closed Apr. 22 and Apr. 25. So far this year, OPEC’s basket price has averaged $104.55/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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