MARKET WATCH: Crude hits 17-month high above $83/bbl

A weaker dollar and momentum from earlier gains pushed the price of crude to a 17-month high closing above $83/bbl Mar. 31 in the New York market, despite a bearish rise in US gasoline inventories the previous week.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 1 -- A weaker dollar and momentum from earlier gains pushed the price of crude to a 17-month high closing above $83/bbl Mar. 31 in the New York market, despite a bearish rise in US gasoline inventories the previous week.

Natural gas prices fell amid concerns US demand recovery will be slower than earlier anticipated as Automatic Data Processing Inc. reported US nonfarm private employment fell by 30,000 jobs vs. market expectations of an increase of 40,000 jobs. “Further dampening US growth outlook was the Institute for Supply Management-Chicago Inc.’s business gauge index [that] slid to 58.8 from 62.6 in February, as compared [with] the market estimate of 61,” said analysts at Pritchard Capital Partners LLC in New Orleans. They reported gas prices were flat in early trading Apr. 1, while crude was still climbing.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “West Texas Intermediate is trying to be priced at the same level as in early 2008, but back then we were at multiyear lows in terms of unemployment while today we are at a multiyear high in unemployment. It will take many months of very strong job growth to reverse the job losses of 2009, and that will not be done by the summer of 2010. Some of the potential US job gains in March are linked to the temporary employment for the census and even if they were not, at [an addition of] 190,000 jobs it would take more than 3 years to get back the lower level of unemployment that was prevalent the last time oil was at this price.”

The Energy Information Administration reported Apr. 1 the injection of 12 bcf of natural gas into US underground storage in the week ended Mar. 26. That was the second injection of this year and within 2 consecutive weeks, but below the consensus estimate of a 17 bcf injection. It increased working gas in storage to 1.638 tcf, down 16 bcf from year-ago levels but 160 bcf above the 5-year average.

“While colder weather depleted the year-over-year storage surplus earlier this year, the market has been on a loosening trend lately. With only this last week left in the winter season and forecasts for warmer weather as we approach summer, we are on track to end winter storage at 1.64 tcf just below last year's close,” said analysts in the Houston office of Raymond James & Associates Inc.

EIA earlier reported commercial US crude inventories increased by 2.9 million bbl to 354.2 million bbl in the week ended Mar. 26, surpassing the Wall Street consensus for a 2.5 million bbl gain. Gasoline stocks rose 300,000 bbl to 224.9 million bbl vs. expectations of a 1.9 million bbl draw. Distillate fuel inventories fell 1.1 million bbl to 144.6 million bbl, short of the consensus for a 1.4 million bbl decline (OGJ Online, Mar. 31, 2010).

Those statistics were “nothing to cheer about,” Jakob said. “Total stocks increased by 3.2 million bbl, with stocks of crude and clean petroleum products increasing by 1 million bbl to levels that are 6 million bbl above last year’s high level and 75 million bbl above the levels in 2008 for the same week,” he said.

Inventories of crude along the US Gulf Coast continue to increase, following the supply patterns of last year. Crude stocks in Cushing, Okla., had “a small build and are at par to the level of a year ago” while other crude stocks in the Midwest outside of Cushing “had a more significant build,” Jakob said. Crude imports from Canada into the Midwest were at a high level offsetting some of the lower numbers seen over the last 3 weeks, he said.

“Crude oil refinery runs are gently being increased to levels closer to 2008, and gasoline production is rising to a multiyear high for the season. With gasoline trading at a very high premium to ethanol, we would expect that biofuel blending will continue to be maximized to all available limits,” said Jakob.

Raymond James analysts said, “The market focused on the dollar rather than the fundamentals yesterday (no surprise there), as the greenback fell vs. the euro, giving back some of the gains it had recently made as Europe sorts out its Greek debacle. Keep in mind, many wouldn't put too much stock into yesterday's price movements as traders engaged in a little ‘window dressing’ of their books at the end of the quarter.”

Analysts at Barclays Capital Research, a division of Barclays Bank PLC, London, reported, “UK gas prices came off 14% in March compared with the February average, pressured by demand retreating due to warmer temperatures, longer day-length and spot prices finishing the month at $4.71/MMbtu. With winter coming to an end, supply is going to replace demand as a price driver. For the summer period, the focus is on the competition between pipelines gas and LNG for market share.”

They said, “LNG arbitrage between US and UK prices has brought convergence between the two markets, and since the beginning of the year National Balancing Point gas in the UK has been trading at a small premium to Henry Hub (40¢/MMbtu). For this summer, we believe LNG in the UK needs to ease, and NBP should then trade at parity with Henry Hub. In the fourth quarter, when demand becomes stronger, we believe the UK could attract more LNG and trade at a slight premium to Henry Hub.”

Energy prices
The May contract for benchmark US sweet, light crudes advanced $1.39 to $83.76/bbl Mar. 31 on the New York Mercantile Exchange. The June contract gained $1.41 to $84.18/bbl. NYMEX will be closed Apr. 2 for Good Friday. On the US spot market, WTI at Cushing was up $1.39 to $83.76/bbl. Heating oil for April delivery escalated 3.99¢ to $2.16/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 3.53¢ to $2.31/gal.

The May natural gas contract dropped 10.4¢ to $3.87/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., increased 2.5¢ to $3.84/MMbtu.

In London, the May IPE contract for North Sea Brent crude was up $1.42 to $82.70/bbl. Gas oil for April gained $9.25 to $683.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 49¢ to $78.70/bbl, The OPEC secretariat in Vienna will be closed Apr. 2-5.

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