MARKET WATCH: Crude tops $83/bbl; gas closes above $6/MMbtu

Energy prices continued to rally Jan. 6 on the New York market with crude climbing for the 10th consecutive session, setting a new 52-week high above $83/bbl despite a bearish government report of bigger-than-expected increases in inventory.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 7 -- Energy prices continued to rally Jan. 6 on the New York market with crude climbing for the 10th consecutive session, setting a new 52-week high above $83/bbl despite a bearish government report of bigger-than-expected increases in inventory.

“While intraday oil fell on the [inventory] news and appeared ready to finally take a breather from its recent 2-week climb, crude instead caught a second wind and rallied with the rest of commodities to a new high,” said analysts in the Houston office of Raymond James & Associates Inc.

Meanwhile, the front-month natural gas contract jumped 7% to close above $6/MMbtu for the first time in a year “in the face of freezing cold weather, equally cold forecasts, and a broader commodity rally,” Raymond James analysts reported.

It would be easy to conclude the wave of cold weather around the northern hemisphere is also the main factor spurring oil prices higher. “The problem, however, is that heating oil was yesterday the weakest part of the energy complex, with the cracks losing as much as crude oil was gaining on flat price, and even the heating oil spreads started to come back under some pressure,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

Large distillate stocks
Jakob acknowledged, “The colder weather is going to bring some incremental demand…but on the other hand, the US distillate stocks are at the highest level at the start of the year since 1985, and the days of supply cover in distillates are for the start of the year at the highest level since 1999. On top of that, we have to add…75 million bbl of floating distillate stocks in the Atlantic Basin (out of a worldwide total of about 100 million bbl) and there are already reports of some of these vessels sailing back to the US.”

Meanwhile, because of reduced internal demand, “the US has recently turned into a net exporter of distillates (and a part of that into the floating stocks),” Jakob reported. “In the first quarter of 2006 the US was importing a net of 280,000 b/d of distillates; in the first quarter of 2007 it was importing a net of 145,000 b/d, whereas in recent month the US has been a net exporter of about 400,000 b/d. This means that the US refining system does not even have to necessarily increase refinery runs to meet the incremental [winter] demand for distillates; all it needs to do is redirect some of the distillates flows that were exported to floating stocks back into the internal market.”

He concluded, “The cold weather is not going to squeeze the system and while the balancing acts don’t necessarily happen overnight, we can not foresee a long-lasting supply concern on distillate and will look at the current relative strength to start positioning for a weaker structure at the exit of winter.”

US inventories
The Energy Information Administration reported the withdrawal of 153 bcf of natural gas from US underground storage in the week ended Jan. 1, just below the Wall Street consensus for a draw of 154-155 bcf. That left 3.1 tcf of working gas still in storage, up 286 bcf from the same period last year at this time and 316 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased 1.3 million bbl to 327.3 million bbl in the same week. US gasoline stocks were up 3.7 million bbl to 219.7 million bbl. Distillate fuel inventories decreased 300,000 bbl to 159 million bbl (OGJ Online, Jan. 6, 2010).

Jakob reported, “In total, US [oil] stocks had a draw of 2.2 million bbl, but the main products (crude, heating oil, gasoline, jet fuel) had an overall build of 4.4 million bbl. Crude oil had a small build of 1.3 million bbl but the global crude oil number is hiding a 1 million bbl draw in the discounted West Coast, a strong 1.2 million bbl build in Cushing, Okla., and a 4.4 million bbl build along the US Gulf Coast.”

The latest government inventory was 7.6 million bbl below the earlier American Petroleum Institute’s tally for the Gulf Coast district “and is starting to catch up on the divergence and this for now also fits in with the seasonal draw in December, build in January. For the start of a year, the US days of forward cover in crude oil are at the highest level since 1994 and the total US crude stocks at the highest level since 1995 for a beginning of January,” Jakob said.

Energy prices
The February contract for benchmark US sweet, light crudes escalated $1.41 to $83.18/bbl Jan. 6 on the New York Mercantile Exchange. The March contract gained $1.34 to $83.75/bbl. On the US spot market, West Texas Intermediate at Cushing was up $1.41 to $83.18/bbl. Heating oil for February delivery inched up 0.91¢ to $2.20/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.16¢ to $2.14/gal.

The February contract for natural gas shot up 37.2¢ to $6.01/MMbtu, breaking a four-session losing streak on NYMEX. On the US spot market, gas at Henry Hub, La., continued to rise, up 28¢ to $6.43/MMbtu.

In London, the February IPE contract for North Sea Brent advanced $1.30 to $81.89/bbl. Gas oil for January increased $2.50 to $661.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 52¢ to $79.64/bbl on Jan. 6.

Contact Sam Fletcher at samf@ogjonline.com.

More in Economics & Markets