MARKET WATCH: Crude prices inch higher on favorable economic reports

Despite a strengthening dollar, crude prices inched up Dec. 9 in the New York market as reports of reduced jobless claim numbers appeared to indicate economic recovery is on track, likely leading to increased demand for oil next year.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 10 -- Despite a strengthening dollar, crude prices inched up Dec. 9 in the New York market as reports of reduced jobless claim numbers appeared to indicate economic recovery is on track, likely leading to increased demand for oil next year.

Meanwhile, the near-month natural gas contract fell 3.7% in New York as “a stronger than expected withdrawal from storage likely prompted some investors to take some of their profits off the table,” said analysts in the Houston office of Raymond James & Associates Inc.

“Initial jobless claims fell 17,000 to 421,000 in the latest week vs. consensus of a decline to 425,000,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Additionally, a surge of 1.1 million b/d in Chinese crude imports to 5.1 million b/d in November also signaled that the demand in the country remains robust despite the government’s recent measures to tighten its monetary policy. However, further tightening of Chinese monetary policy probably is in cards if the inflation in the country climbed more than the consensus of 4.7% in November.”

Raymond James analysts said, however, “Continued uncertainty swirling around the European debt crisis gave the dollar a leg up on the euro and put a cap on oil's momentum from the previous day.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, observed, “Oil continues to follow the dollar intraday. . . . The West Texas Intermediate term structure strengthened slightly yesterday while the term structures of Brent and ICE gas oil continued to weaken.” He said the front-month reformulated blend stock for oxygenate blending (RBOB) contract in New York was the best performer, up 1.6% on news a fluid catalytic cracker is down again at Hovensa LLC’s 500,000 b/d St. Croix refinery in the US Virgin Islands. The refinery’s 150,000 b/d FCC unit previously went off line at the end of September.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Global markets are in a standstill. Everybody is already positioned and waiting for a last surge on crude oil to propel stocks higher and make a nice final print for the year. Crude oil did nothing, and the Standard & Poor’s 500 index is struggling to make new highs.”

Economic uncertainty also is due to “traditions are not respected anymore,” said Jakob. “The Brits are throwing rocks at the royal highness; the US democrats are dragging their feet to follow the president on the extension of the tax cuts; and some of the Irish opposition is threatening to say ‘nay’ to the International Monetary Fund rescue. We used to have only to worry about [crude inventories] in Cushing, Okla., and about the Organization of Petroleum Exporting Countries, but with all those rescue and bailouts packages the list of risks is increasing.”

OPEC ministers are to meet Dec. 11 in Quito, Ecuador, “with a quota ‘rollover’ apparently foreordained by ministerial statements to the press,” said Adam Sieminski, chief energy economist, Deutsche Bank AG, Washington. “Markets are tightening quickly in our view, and the risk in oil pricing is to the upside.”

OPEC reported Dec. 10 its reference basket price increased to an average $82.83/bbl in November as futures markets for WTI and Brent continued trading between $80-90/bbl for the second consecutive month and reached 25-month highs.

Cartel leaders see the world economy continuing to expand with 2010 growth revised up to 4.3% from 4.1% previously on better-than-expected growth in the manufacturing sector. Growth in 2011 also was revised to 3.8% from 3.6%. The US economy is forecast to grow 2.8% in 2010 and 2.4% in 2011.

World oil demand growth in 2010 is forecast at 1.5 million b/d, a 200,000 b/d increase. For 2011, world oil demand growth is pegged at 1.2 million b/d, unchanged from the previous OPEC report.

Meanwhile, Pritchard Capital Partners reported, “China has stated will curtail imports if crude prices surpass $90/bbl. To achieve self sufficiency in refined products (a goal stated last year) China needs to allow refiners to earn a margin, implying crude needs to be below $90/bbl. There is a case to be made that Saudi Arabia could add 1 million b/d to the market to bring down prices and keep demand growth intact. Current spare capacity is 5.5 million b/d.” Such a production increase “would also send a message to Iran, Venezuela, and Nigeria that quota adherence matters. Saudi's budget requires a $74/bbl price,” analysts said.

Sieminski said, “As we have moved into the seasonally strong period for gasoil demand, the European balances are an important market driver. Unlike the past two winters, Europe entered the season with what appears to be a tighter gas oil balance. A colder-than-normal winter in the northern hemisphere combined with a surprise boost in Chinese demand raises the global competition for gas oil barrels.”

In the interim, he said, “Cold weather in the US and across the northern hemisphere is helping to absorb some of the gas glut. Indeed a dying La Niña would tend to favor strong late winter cold, which may support natural gas markets even if there is a normalization in winter temperatures in the very short term.”

In its monthly Oil Market Report, the International Energy Agency (IEA) increased its 2011 global oil demand forecast by 260,000 b/d to 88.8 million b/d, representing 1.6% growth over last year. IEA officials expect demand growth to be led by developing economies, with China accounting for more than half the growth outside of the Organization for Economic Cooperation and Development members. On the supply side, IEA’s projection for non-OPEC supply in 2011 is unchanged at 53.4million b/d, but it raised its OPEC supply estimate 100,000 b/d to 29.5 million b/d.

Energy prices
The January contract for benchmark US light, sweet crudes increased 9¢ to $88.37/bbl Dec. 9 on the New York Mercantile Exchange. The February contract gained 6¢ to $88.88/bbl. On the US spot market, WTI at Cushing was up 9¢ to $88.37. Heating oil for January delivery inched up 0.61¢ to $2.47/gal on NYMEX. RBOB for the same month advanced 3.59¢ to $2.34/gal.

The January natural gas contract fell 17.1¢ to $4.44/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., was up 6.8¢ to $4.52/MMbtu.

In London, the January IPE contract for North Sea Brent crude escalated 22¢ to $90.99/bbl, widening its premium to WTI. Gas oil for December gained 50¢ to $757.75/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 46¢ to $87.92/bbl.

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