MARKET WATCH: Crude oil, natural gas prices fall

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 8 -- The front-month crude contract fell for the first time this week, down 1.1% on Apr. 7 in the New York market on a strengthening dollar and a “somewhat bearish” government report of a 1.8 million bbl total build in US petroleum inventories.

The price of natural gas also was down in anticipation of a bigger injection into US underground storage. Both crude and natural gas continued to fall in early trading Apr. 8 as the dollar climbed 0.3% against a basket of currencies with the euro close to a low for this year against US currency.

US inventories
The Energy Information Administration reported the injection of 31 bcf of gas into US underground storage in the week ended Apr. 2, raising working gas in storage to 1.669 tcf. That’s down 2 bcf from the storage level a year ago and 180 bcf above the 5-year average. Although it was the third week of gas injections into storage, analysts in the Houston office of Raymond James & Associates Inc. said, “April typically marks the beginning of injection season.”

EIA earlier reported commercial inventories of benchmark US crude increased by 2 million bbl to 356.2 million bbl in that same week, surpassing the Wall Street consensus of a 1.4 million bbl gain. Gasoline stocks in the same week fell 2.5 million bbl to 222.4 million bbl, far beyond Wall Street expectations of a 1 million bbl draw. Both finished gasoline and blending components decreased. Distillate fuel inventories increased 1.1 million bbl to 145.7 million bbl, while analysts were anticipating a 1.1 million bbl decline (OGJ Online, Apr. 7, 2010).

Raymond James analysts said, “While there was a larger than expected draw in gasoline inventories, it was not enough to offset the larger than expected build in crude oil inventories.” They predicted “another volatile day” for energy stocks.

The American Petroleum Institute reported a 1.1 million bbl increase in benchmark crude to 353 million bbl, with gasoline stocks dropping 3 million bbl to 220.2 million bbl and distillate fuel stocks up by 723,000 bbl to 148.3 million bbl.

The West Texas Intermediate contango has widened in the last few days “to levels where economics should soon start to sponsor higher stock building” in the key Cushing, Okla., storage. “The stock situation on crude plus clean petroleum products has been exceptionally stable over the last 12 months and continues to show a US supply system [that] is anything but under stress,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

“Stocks are at multiyear highs and showing no signs of being pulled into any imbalances. Overall demand has increased vs. a year ago (however, still more in the ‘other products’ than in clean petroleum products), refinery runs are also increasing but crude oil stocks are staying in a normal seasonal pattern. There is no stress on the supply system because the Organization of Petroleum Exporting Countries is gently lowering its compliance to quota as demand gently comes back,” he said.

Jakob said 6 million b/d of crude oil imports into the US Gulf Coast “are at the highest level in 12 months, and stocks are building in a normal seasonal pattern in anticipation of being transformed into products during the summer.” He said, “If the run on flat price puts the brakes on demand for products, then refineries will run less and the crude stocks that are being built will remain in the tanks, and that will then put more pressure on the time spreads. At face value, the reported draw in gasoline is a positive input but there are enough concerns about the sustainability of demand and gasoline units coming back from maintenance that the cracks continued to erode despite the stock draws.”

With increased refinery runs, distillate production is up. Given that the stock base is still at a multiyear high, “it is difficult to see under the current economics how we will avoid a repeat of the 2009 onshore stock build,” Jakob said.

Energy prices
The May contract for benchmark US sweet, light crudes traded as high as $87/bbl intraday but closed at $85.88/bbl Apr. 7 on the New York Mercantile Exchange, down 96¢ for the day. The June contract lost 88¢ to $86.51/bbl. On the US spot market, WTI at Cushing was down 96¢ to $85.88/bbl. Heating oil for May delivery declined 2.44¢ to $2.24/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 3.36¢ to $2.31/gal.

The May natural gas contract dropped 7.7¢ to $4.02/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 6¢ to $4.09/MMbtu.

In London, the May IPE contract for North Sea Brent crude fell 56¢ to $85.59/bbl. Gas oil for April dropped $9.50 to $716.25/tonne.

The average price for OPEC’s basket of 12 reference crudes was down 18¢ to $82.41/bbl.

Contact Sam Fletcher at [email protected].