MARKET WATCH: Crude oil prices rebound amid Iranian threats

Crude oil prices rose Feb. 7 amid threats by Iranian officials to cut off oil exports to European Union countries that voted in January to impose sanctions in a long-running dispute over Iran’s nuclear program. The front-month natural gas contract fell 3.1% in the New York market and continued to decline in early trading Feb. 8.

“The oil market was firm again yesterday, with West Texas Intermediate outperforming Brent on an intraday basis for the first time in 2 weeks,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Middle-distillates were again the best performer across the complex, while gasoline cracks were squeezed again.”

Zhang reported, “Price differentials for physical crude from North Sea and Urals were very strong, which gives cause for optimism for the Brent market in general.”

In other news, Zhang said, “China’s domestic price increase for both gasoline and distillates was confirmed yesterday by the government, which should give more incentive for Chinese refineries to increase run rates. Amid the US sanction over Iran, it has been reported that China and India plan to settle oil trade with Iran in Ren Min Bi (RMB, the currency of the People's Republic of China) and the rupee respectively, as ways around the US sanction. It is difficult to assess accurately how much Iranian crude exports have been affected by the sanction so far. However, price action in the physical market suggests that the physical market has been tightening since the sanction, despite increased production from Saudi Arabia.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The Chinese government did not delay the trigger on the expected increase of domestic prices for gasoline and diesel…. The Chinese consumer will today pay 34% more for gasoline than in July 2008. Compared with the Chinese or the European consumer, the American consumer is facing better price conditions as the price of gasoline in the US is still about 15% lower than in July 2008. But unfortunately that is not doing much for gasoline consumption as the [latest MasterCard Spending Pulse report on US retail gasoline sales] at the pump shows demand down 5.3% from a year ago and 4.9% on the 4-week average.”

In Houston, analysts at Raymond James & Associates Inc. said, “Greek optimism continued yesterday as all eyes remain on the debt-laden country as it continues to move closer to reaching an agreement on budget cuts and other austerity measures.”

However, Jakob noted, “Europe remains cold, and the return of warmer weather is a bit like the Greek debt talks: it keeps on being pushed back. The move of ICE gas oil out of a contango continues as it seems that we will be burning heavily heating oil next week. The backwardation in March-April [contracts] is widening much more rapidly than February-March. For the front spread, we continue to monitor the declining water levels on the Rhine.”

US inventories

The Energy Information Administration said Feb. 8 commercial US inventories of crude were up just 300,000 bbl to 339.2 million bbl in the week ended Feb. 3, far below Wall Street’s consensus for a 2.5 million bbl increase. US gasoline stocks rose 1.6 million bbl to 231.8 million bbl. Analysts expected a 2.5 million bbl gain in gasoline, too. Both finished gasoline and blending components increased last week. Distillate fuel inventories gained 1.2 million bbl to 146.6 million bbl, exceeding an expected increase of 900,000 bbl. Total commercial petroleum inventories had a net gain of 4.2 million bbl last week, according to EIA.

The American Petroleum Institute earlier reported US crude stocks fell 4.5 million bbl to 334.9 million bbl in the same period. Gasoline inventories increased 4.4 million bbl to 228.9 million bbl, said API, while distillate stocks gained 386,000 bbl to 144.2 million bbl.

EIA said imports of crude into the US fell 467,000 b/d to 8.4 million b/d last week. In the 4 weeks through Feb. 3, crude imports averaged 8.6 million b/d, down 474,000 b/d from the comparable period in 2011. Gasoline imports averaged 715,000 b/d last week, while distillate fuel imports averaged 111,000 b/d.

Nonetheless, input of crude into US refineries increased 180,000 b/d to 14.4 million b/d last week with units operating at 82.8% of capacity, EIA reported. Gasoline production increased to 8.6 million b/d; distillate fuel production decreased to 4.5 million b/d.

Energy prices

The March contract for benchmark US light, sweet crudes recovered $1.50 to $98.41/bbl Feb. 4 on the New York Mercantile Exchange. The April contract recouped $1.41 to $98.82/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.50 to $98.41/bbl.

Heating oil for March delivery increased 2.02¢ to $3.19/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched down 0.04¢ to close essentially unchanged at a rounded $2.93/gal.

The March natural gas contract dropped 7.8¢ to $2.47/MMbtu, wiping out its gain from the previous session on NYMEX. In the US spot market, however, gas at Henry Hub, La., continued to rally, up 10.2¢ to $2.59/MMbtu.

In London, the March IPE contract for North Sea Brent increased 30¢ to $116.23/bbl. Gas oil for February continued to escalate, gaining $7 to $995.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up $1.28 to $114.68/bbl.

Contact Sam Fletcher at samf@ogjonline.com.