MARKET WATCH: Oil prices rebound, ending losing streak

Oil prices rebounded Mar. 7 on an Automatic Data Processing Inc. report of 216,000 more jobs in the US private-sector in February and amid renewed optimism over the Greek debt restructuring talks as traders shrugged off a mixed report of US oil inventories. Front-month crude rose 1.4% in the New York futures market but natural gas fell 2.3% on forecasts for mild weather.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “The euro and equity market turned more confident over a majority sign-up from private investors on the Greek debt restructuring deal.” However, he said, “West Texas Intermediate underperformed as investors clearly favored Brent as a bullish bet on oil over WTI, amid a sharp increase in oil inventories at Cushing, Okla., the WTI physical oil delivery point.” The Brent structure rebounded slightly but remained in fairly steep backwardation.

Zhang said, “Crude inventories at Cushing rose by 2.4 million bbl, which will keep the WTI structure under pressure.” Meanwhile, implied demand for gasoline and distillates dipped 100,000 b/d, with demand for total oil products in the US remaining at a 10-year low.

“While the paper oil market still appears to be buoyant for now, some of the physical market is taking strain from poor refining margins, in particular the Mediterranean region,” said Zhang. “Even though Iran’s crude export to the region is likely to have declined sharply, demand for the obvious replacement crude, Urals, has been lackluster. Price differentials of Urals over dated Brent slumped again yesterday to their lowest levels since the beginning of this year, for deliveries to both the Mediterranean and Northwest Europe.”

He said, “The event risk over the Greek debt restructuring remains fairly high, with the sign-up deadline this evening and the official announcement scheduled for tomorrow morning. We see the oil market continuing with its volatile correction phase probably for the rest of this week. With the aforementioned weakness in the physical market, we can clearly see a sharp downward move coming fairly soon. That said, caution has to be taken as there may be a short-term rebound if the Greek debt restructuring deal goes through tomorrow.”

US inventories

The Energy Information Administration reported the withdrawal of 80 bcf of natural gas from US underground storage in the week ended Mar. 2, below Wall Street’s consensus for an 85 bcf pull. That left 2.4 tcf of working gas in storage, up 739 bcf from the comparable period in 2011 and 792 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased 800,000 bbl to 345.7 million bbl in the week ended Mar. 2, compared with Wall Street’s consensus for a 1.8 million bbl decline. Gasoline stocks decreased 400,000 bbl to 229.5 million bbl, short of an expected 1.6 million bbl drop. Distillate fuel inventories dropped 1.9 million bbl to 139.5 million bbl, exceeding analysts’ anticipation of a 1.7 million bbl decline (OGJ Online, Mar. 7, 2012).

Energy prices

The April contract for benchmark US sweet, light crudes gained $1.46 to $106.16.bbl Mar. 7 on the New York Mercantile Exchange. The May contract increased $1.44 to $106.65/bbl. On the US spot market, WTI at Cushing was up $1.46 to $106.16/bbl.

Heating oil for April delivery increased 3.12¢ to $3.22/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 5.75¢ to $3.29/gal.

The April natural gas contract dropped 5.4¢ to $2.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 6.5¢ to $2.23/MMbtu.

In London, the April IPE contract for North Sea Brent escalated $2.14 to $124.12/bbl. Gas oil for March was unchanged at $1,006/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 22¢ to $121.76/bbl.

Contact Sam Fletcher at samf@ogjonline.com.