MARKET WATCH: Oil prices rebound from heavy losses last week

Energy prices rebounded May 9 following a five-session downturn last week, as crude jumped by 5.5%, closing once more above $100/bbl in the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 10 -- Energy prices rebounded May 9 following a five-session downturn last week, as crude jumped by 5.5%, closing once more above $100/bbl in the New York market.

In the Houston office of Raymond James & Associates Inc., however, analysts said, “Bearish fundamentals appear to have caught up with [natural] gas as prices slid 1.9%, marking its sixth consecutive day of selling off.” The price of crude was down while the broader equity market and natural gas were higher in early trading May 10.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “Oil recovered strongly yesterday despite the euro weakening after Greece’s further downgrade.” Officials at Standard & Poor’s cut Greece’s credit rating from BB– to B with further negative outlook, which weakened the euro and strengthened the dollar.

Reformulated blend stock for oxygenate blending (RBOB) was again the best performer in the oil complex, as the June RBOB contract settled at the highest price above the June heating oil contract “since May 2009,” Zhang said. “Following flat prices, the term structures for West Texas Intermediate and North Sea Brent also strengthened.”

In a separate report, Zhang said, “We view the recent oil sell-off as a correction after the very sharp upward move since February, rather than a reversal of the upward trend. In fact, the long-term bullish trend remains intact. Nevertheless, last week’s oil sell-off sacrificed much of the price gains stemming from Middle East, North Africa region unrest. While the contagion risk to other major oil producers seems subdued, the geopolitical situation in this region remains heated, with the Libyan civil war ongoing and tensions in Syria and Yemen running high.”

Therefore, he warned, “The market is still heavily exposed to supply shocks induced by geopolitical risks.”

More importantly, Zhang said, “The developments in the oil market during the first quarter have diminished the efficacy of three factors that usually protect the oil market from supply shocks: oil inventories, the Organization of Petroleum Exporting Countries’ spare production capacity, and spare capacity in the refining system.” Consequently, oil prices are prone to upward spikes if additional supply shocks occur. “This adds to the upward pressure (stemming from the continuous growth in global oil demand as the global economy recovers) on oil prices,” he said.

Zhang said, “In fact, the long-term bullish trend remains intact. As the weak length in the market has been taken out, the market is building a foundation to attack new highs, barring any major economic upsets. As crude prices regain momentum, we expect distillate cracks to come under more pressure due to seasonal decline in demand and high inventories.”

In other news, China reported overnight a trade surplus of $11.42 billion, “with strong year-to-year growth in both imports and exports, which is likely to alleviate concerns over the negative impacts from China’s policy tightening to some extent,” said Zhang.

The latest trade data reveal China’s net crude import [for] April rose by 3% month-over-month to 21.25 million tonnes, equivalent to 5.2 million b/d. The net import for oil products fell slightly to 1.2 million tonnes in April from the 1.3 million/tonne level in March. “It appears that demand for oil is still strong in China despite the rapid increase in retail gasoline and diesel prices,” Zhang said. “Prior to the sharp fall in oil prices on the international market last week, it has been speculated that China might raise the retail fuel price again in May.”

Energy prices
The June contract for benchmark US sweet, light crudes jumped by $5.37 to $102.55/bbl May 9 on the New York Mercantile Exchange—its first gain both in the last six sessions and for May. This contract lost a total $16.75/bbl over the five trading sessions of last week. The July contract escalated $5.33 to $103.10/bbl on May 9. On the US spot market, WTI at Cushing, Okla., was up $5.37 to $102.55 in lock-step with the front-month futures contract.

Heating oil for June delivery gained 11.61¢ to $2.96/gal on NYMEX. RBOB for the same month advanced 18.83¢ to $3.28/gal.

The June contract for natural gas, however, fell 8.1¢ to $4.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 2¢ to $4.23/MMbtu.

In London, the June IPE contract for North Sea Brent regained $6.37 to $115.90/bbl on May 9, having lost a total of $17.17/bbl over five sessions last week. However, gas oil for May fell $8.75 to $919.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes increased $3.68 to $108.08/bbl.

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