MARKET WATCH: Crude inches up to 2-month high

Crude inched up Mar. 11 to its highest level in 2 months in the New York market and “appears to be on track for more of the same as the dollar continues to weaken,” said analysts in the Houston office of Raymond James & Associates Inc.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 12 -- Crude inched up Mar. 11 to its highest level in 2 months in the New York market and “appears to be on track for more of the same as the dollar continues to weaken,” said analysts in the Houston office of Raymond James & Associates Inc.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The oil fundamental data points are not strong enough to justify a move above $85/bbl; hence, oil bulls have to rely instead on the US macroeconomic data to justify buying crude oil on ‘renewed optimism about the economic recovery.’ So far this week there was little macrodata to consider, and West Texas Intermediate stayed in a very small range on a closing basis.”

As the New York market took a break from its recent energy futures price volatility, the April contract for North Sea Brent in London declined “on news from China where consumer prices rose 2.7% in February year-over-year, prompting speculation that the Chinese could raise interest rates or tighten bank lending,” said analysts at Pritchard Capital Partners LLC in New Orleans.

“Additionally, the International Energy Agency [in Paris] boosted its global oil demand estimate from 85 million b/d in 2009 to 86.6 million b/d in 2010, a 1.8% increase,” Pritchard Capital analysts said. “The demand growth is expected to come primarily from non-OECD [Organization for Economic Cooperation and Development] countries, with Asia counting for approximately one half and China one third of global oil demand growth.”

Jakob said, “The Chinese industry minister warned that China will not be able to maintain the recent industrial growth as some of the stimulus packages start to fade. The challenge for China in 2010 will be the same as for all the main economies: how to replace the subsidized economy of 2009 with unsubsidized consumer demand when job growth is still a virtual concept. The first months of 2009 were an industrial disaster hence some of the current data (especially China) is benefiting from the base effect of 2009, but that base effect should start to slow in the coming months.”

The front-month natural gas contract fell to its lowest level of the year on Mar. 11, “down 1.5% despite a ho-hum withdrawal number,” Raymond James analysts said.

The Energy Information Administration reported the withdrawal of 111 bcf of natural gas from US underground storage in the week ended Mar. 5, above the Wall Street consensus for a 110 bcf decline. That left 1.6 tcf of working gas in storage, down 71 bcf from a year ago at this time but 19 bcf above the 5-year average (OGJ Online, Mar. 11, 2010).

However, Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “Shifts in US gas storage since late December, if anything, have been bullish. We believe it is the growing consensus expectation for shale gas supplies to overturn the consensus forecast from last year for a production decline in 2010 that is driving prices down.”

The EIA said commercial US crude inventories increased by 1.4 million bbl to 343 million bbl in the week ended Mar. 5. Gasoline inventories fell 2.9 million bbl to 229 million bbl. Distillate fuel inventories decreased by 2.2 million bbl to 149.6 million bbl (OGJ Online, Mar. 10, 2010).

Sieminski said, “Analysts may be underestimating the impact that unconventional oil production, that is biofuels not oil sands, is having on total production this year. When viewed on a total basis, the contribution to oil supply growth this year from unconventional oils is greater than any of the individual countries often cited as being the likely sources of non-OPEC growth for 2010.

He noted, “Chile is yet again importing high volumes of diesel as its refineries struggle to resume operations following last month's earthquake. Unlike 2 years ago, China is a net exporter of diesel while surplus capacity exists in the US to meet the sudden demand from Chile. Consequently, while Chile's sudden import need has provided short-term support for gasoil, we believe that it will not pack the same punch as it did in 2008.”

Energy prices
The April contract for benchmark US light, sweet crudes inched up 2¢ to $82.11/bbl Mar. 11 on the New York Mercantile Exchange. The May contract was unchanged at $82.43/bbl. On the US spot market, WTI at Cushing, Okla., was up 2¢ to $82.11/bbl. Heating oil for April delivery dipped 0.12¢ but the closing price was essentially unchanged at $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.31¢ to $2.27/gal.

The April natural gas contract dropped 11.9¢ to $4.40/MMbtu on NYMEX. “The market continued its down trend of the last few weeks due to the lack of any price supportive data,” said Pritchard Capital analysts. On the US spot market, gas at Henry Hub, La., gained 4.5¢ to $4.48/MMbtu.

In London, the April IPE contract for North Sea Brent crude fell 20¢ to $80.28/bbl. Gas oil for March was unchanged at $664.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 4¢ to $77.76/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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