MARKET WATCH: NY crude fails to sustain above $100/bbl

Energy prices continued to fluctuate with the latest front-month crude contract rising briefly above $100/bbl on May 24 prior to sliding back. The contract price still was up 2% for the day in the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 25 -- Energy prices continued to fluctuate with the latest front-month crude contract rising briefly above $100/bbl on May 24 prior to sliding back. The contract price still was up 2% for the day in the New York market.

“Another strong German business confidence data point drove the euro higher vs. the dollar,” explained analysts in the Houston office of Raymond James & Associates Inc. “The move lifted energy stocks above the broader market.” The front-month natural gas contract traded flat but was up in early trading May 25, with crude and the broader market roughly unchanged.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Oil remained in a consolidation mode yesterday and recovered [much of] the losses of May 23, following more positive economic data.” He said, “Oil product prices were largely following crude to trade higher. Meanwhile, term structures for West Texas Intermediate, North Sea Brent, and ICE gas oil were broadly unchanged.”

Although the Eurozone debt crisis remained “at the forefront of investors’ mind,” Zhang said, “the positive economic data provide some relief.” In the short term, the market is likely to be in a consolidation mode, with further downside risks if the Eurozone debt crisis and US macroeconomic data show further deterioration, he said. “For the medium term, the oil market fundamentals will continue tightening, with declining inventories and diminishing spare capacity, which points to further upside for oil prices,” he said.

Both the Goldman Sachs Group Inc. and Morgan Stanley Capital Group yesterday increased their price forecasts on a 12-month basis to $130/bbl for North Sea Brent crude. Earlier J.P. Morgan, one of the leading global investment banks, reiterated its prediction crude will be selling at $130/bbl by yearend (OGJ Online, May 24, 2011).

“Technically, yesterday can be described as a ‘oops’ day,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “WTI did not manage to break the resistance of $100/bbl, and it could have turned much worse if not for the support in the last 30 min of trading on the New York Mercantile Exchange. The Standard & Poor’s 500 index, however, lost all its support in its last 30 min of trading, and we are convinced that we will see Goldman Sachs trading at 130 before we see Brent trading at $130/bbl.”

WTI did close above its 100-day moving average but remained within its recent narrow range. During the New York market’s regular trading session, Jacob observed, “The S&P was again mostly supported by the oil sector and once again the S&P started to fall once the NYMEX settled. The S&P is sitting on the 100-day moving average and the overnight weakness is a bearish risk to consider.”

As for US demand, the latest MasterCard Spending Pulse report on retail gasoline sales at the pump showed US sales down 1.4% during last week, “which is 2% lower than the same week last year, and the 4-week average is down 1.6% vs. a year ago,” Jakob said. “And this with only 2 days of Brent pricing above $126/bbl so far this year.”

Analysts at Barclays Capital, the investment banking division of Barclays Bank PLC, London, said, “Despite the recent large price gyrations, we have seen nothing over the past few weeks that make us want to tone down our current constructive view on oil on a fundamental basis. To date, the balance of risk remains heavily biased to the upside, while pent-up consumer demand and higher break-even price requirements from members of the Organization of Petroleum Exporting Countries to balance their rising budgets continue to keep a solid floor to prices at elevated levels. Thus, the oil market is not in either fundamental or political balance at this point, and the current imbalance tends to skew price risks to the upside.”

In other news, Zhang said, “The European jet differential has weakened further today on the back of air traffic disruptions caused by the Icelandic volcano ash cloud.”

Jakob reported, “About 500 flights (from 29,000 across Europe) were cancelled yesterday because of the ash cloud.” The cloud “is still marginal, and it seems that the eruption is starting to weaken,” he said. As a result, he said, “We would not over-trade on this input.”

Meanwhile, the scheduled June 8 meeting of OPEC ministers “will be interesting to follow for its political implication on Libya,” said Jakob. “Having a representative of the [Moammar] Gadhafi regime will be an embarrassment to those Gulf Cooperation Council countries that are supporting the rebels; but in international law, it would also confirm that the legitimate representative of Libya is the Gadhafi regime and not the rebel National Transitional Council (CNT).”

He advised, “The best face-saving solution for some GCC countries would be to cancel the meeting, justifying the move by ‘the market is well supplied, prices have receded from the recent peaks, OPEC will continue to monitor the market but sees no need to meet at this stage.’”

US inventories
The Energy Information Administration on May 25 reported commercial US inventories of crude increased 600,000 bbl to 370.9 million bbl in the week ended May 20. The Wall Street consensus was for a decline of 1 million bbl. Gasoline stocks escalated by 3.8 million bbl to 209.7 million bbl, counter to expectations of a 1.5 million bbl drop. Both finished gasoline and blending components were up. Distillate fuel inventories fell 2 million bbl to 141.1 million bbl despite market anticipation of a 500,000 bbl gain.

The American Petroleum Institute earlier reported US crude stocks were down 860,000 bbl to 368.1 million bbl in the week ended May 20. It reported gasoline inventories increased by 2.4 million bbl to 211.2 million bbl in that period, while distillate fuel stocks dropped 846,000 to 143.8 million bbl.

Imports of crude into the US increased 662,000 b/d to 9.2 million b/d last week, EIA reported. In 4 weeks through May 20, crude imports averaged 8.9 million b/d, down 938,000 b/d from the comparable period in 2010. Gasoline imports averaged 1.4 million b/d last week while imports of distillate fuel averaged 103,000 b/d.

The input of crude into US refineries increased by 494,000 b/d to 14.8 million b/d in the latest week, said EIA officials, with units operating at 86.3% of capacity. Gasoline production increased to 9.3 million b/d, and distillate fuel production increased to 4.3 million b/d.

Energy prices
The July contract for benchmark US light, sweet crudes closed at $99.59/bbl, up $1.89 for the day, after temporarily touching $100.09/bbl in intraday trading May 24 on NYMEX. The August contract gained $1.92 to $100.06/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.39 to $99.09/bbl.

Heating oil for June delivery increased 6.26¢ to $2.91/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 5.47¢ to $2.99/bbl.

The June contract for natural gas dipped 0.1¢ but closed essentially unchanged at a rounded $4.35/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued climbing, up 4.5¢ to $4.37/MMbtu.

In London, the July IPE contract for North Sea Brent rose $2.43 to $112.53/bbl. Gas oil for June gained $19.75 to $919.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.84 to $107.30/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

More in Economics & Markets