MARKET WATCH: Energy prices rebound with bullish inventories

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 11 -- Energy prices rebounded Mar. 10 with most futures contracts wiping out losses from the previous session in the New York market as crude temporarily topped $83/bbl to a 15-week intraday high following a bullish government report on US oil inventories.

“Total petroleum inventories for the previous week fell by 4.9 million bbl compared [with] a consensus forecast of a net build of 1 million bbl,” said analysts in the Houston office of Raymond James & Associates Inc. “An unexpected draw in both gasoline and distillate inventories more than offset a build in crude inventories. Oil prices retreated through the day but still managed to close in the green as the front month contract finished up modestly. Gas prices rode the surge, finishing up 2% on the day as energy stocks performed in line with the broader market (both up modestly on the day).”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Prices also found support from news of 46% year-over-year rise in Chinese exports, while the car sales in China increased by 55% year-over-year in February. The [US inventory] report also indicated signs of demand recovery as fuel consumption increased 0.2% to 19.7 million b/d last week, the highest level since August, resulting in a 2.96 million bbl drop in gasoline inventory.”

US inventories
The Energy Information Administration on Mar. 11 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.

Raymond James analysts said, “The colder weather and large withdrawals through the last few [weeks] depleted the year-over-year storage surplus. Now with weather beginning to warm up, we could expect to see withdrawals begin to reduce as indicated by our forecast for a reduction of 15 bcf from storage next week.”

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).

The American Petroleum Institute earlier reported a large jump in crude inventory, up 6.5 million bbl to 343.6 million bbl for that same week. It said gasoline stocks fell 3.2 million bbl to 229.7 million bbl. It reported distillate stocks were down 2.8 million bbl to 151.8 million bbl.

EIA showed less of a crude stock build than API, “hence as expected much of the API build in crude was about convergence between the two reports and the breakdown by Petroleum Administration for Defense Districts on crude is very similar now” between the two, said Olivier Jakob at Petromatrix in Zug, Switzerland.

Like API, EIA showed a draw on distillates. “Therefore the API draw was not just about convergence, and together with the stock draw in gasoline that makes for an overall stock reduction (crude and all products) of 5.3 million bbl during the week and 3.9 million bbl for crude and clean petroleum products (gasoline, distillates, kerosine). It is not a small stock reduction, but stocks of crude and clean petroleum products had build by 21 million bbl since the start of the year and are still 14 million bbl above the levels of a year ago or 68 million bbl above the levels of 2008. The stock draw of gasoline was relatively large, but overall stock levels are still high for the season and with the havoc created by the snowstorms we should not exclude that there is some inventories of winter spec gasoline that needs to be voluntarily reduced,” Jakob said.

“All the surveys done by shipbrokers confirm some destocking of the layers of distillates afloat on the water,” he said. “If there has been some reduction of floating stocks of distillates, the absolute levels remain more than double the levels of a year ago and will remain problematic to manage once the refinery run levels start to increase in the Atlantic basin as refineries come out of maintenance with margin levels that are satisfactory.”

Jakob said, “The Come-By-Chance refinery is expected to be back on stream at the end of the month after the maintenance forced by the January fire, and Hovensa announced…its 150,000 b/d fluidized catalytic cracker in St. Croix is being put back in service after 6 weeks of maintenance.” Marathon is ending maintenance at its Garyville, La., refinery with the start up of a major expansion that will boost the crude distillation capacity of the refinery by 180,000 b/d to 436,000 b/d.

“On the crude oil side, stocks of crude oil in the US Gulf have been steadily increased since the start of the year and offer sufficient cushion to allow higher refinery runs,” Jakob said. “On the 4-week average, crude oil imports are lower than last year but are offset by the domestic production that is higher by the same amount. This close balance between the higher production and lower imports shows an industry which is strongly in control of its supply, and this was already illustrated with the well controlled destocking for tax reasons at the end of 2009, followed by a well controlled rebuilding of stocks in January and February.”

Energy prices
The April contract for benchmark US light, sweet crudes climbed 60¢ to $82.09/bbl on the New York Mercantile Exchange—“finishing above $82 for the first time in almost 2 months,” said Pritchard Capital Partners. The May contract gained 57¢ to $82.43/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., continued in lock-step with the front-month futures contract, up 60¢ to $82.09/bbl. Heating oil for April delivery advanced 2.64¢ to $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.48¢ to $2.29/gal.

The April natural gas contract escalated 4.3¢ to $4.56/MMbtu on NYMEX. The hike in the futures market gas price “was in anticipation of higher industrial demand after the Commerce Department’s report of a 0.2% decline in wholesale inventories [of US goods]. Decline in inventories is indicative that industrial demand shall pick up in order to replenish it, resulting in increased natural gas demand,” said Pritchard Capital Partners. On the US spot market, gas at Henry Hub, La., fell 9.5¢ to $4.44/MMbtu.

In London, the April IPE contract for North Sea Brent was up 57¢ to $80.48/bbl. Gas oil for March gained $14.50 to $664.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased by 42¢ to $77.80/bbl.

Contact Sam Fletcher at [email protected].