MARKET WATCH: Crude, gas prices continue to slip

The front-month crude futures price fell Apr. 12 for the fourth consecutive session on the New York market—“something that has not happened since the January setback to $70/bbl,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 13 -- The front-month crude futures price fell Apr. 12 for the fourth consecutive session on the New York market—“something that has not happened since the January setback to $70/bbl,” said Olivier Jakob at Petromatrix, Zug, Switzerland. Natural gas also was down due to mild weather and increased production from US fields.

Crude struggled for a comeback but fell short, down 0.7%, said analysts in the Houston office of Raymond James & Associates Inc. Gas was down 6.2% after Baker Hughes Inc. reported Apr. 9 continued increases in the natural gas rig count to 959. “Energy stocks hopped on the commodity train and underperformed the broader markets…despite the Dow [Jones Industrial Average] rising 1% and passing 11,000,” they said.

Jakob said, “The dramatic change of the market structure as West Texas Intermediate [recently] broke $85/bbl to the upside suggests that indeed market participants are gearing up for supply and demand adjustments fueled by higher prices.”

He noted, “The contango on crude oil continues to widen and as it is now pricing an incentive to hold higher stocks in the delivery hub of Cushing[, Okla.] WTI is starting to price a local market filled to the rim and is therefore moving to a discount to [North Sea] Brent.” With the changes in the structure, Jakob said, “The fundamentals of oil should come back to the front stage, and there is enough divergence between the American Petroleum Institute and the Department of Energy [inventory] reports to bring higher volatility in the relative values [both interday and intraday]. The DOE is considerably higher than the API for crude oil stocks in the US Gulf [Coast] and Cushing. Given that we expect to see a further build of crude oil in Cushing, the risk is to see a significant increase for that metric in the API report.”

Jakob said, “The ICE gas oil deliveries against the April contract were about in line with the deliveries of March and well off the levels seen during the winter months. With WTI moving at a discount to Brent, we will have to watch for a reopening of the US distillate arbitrage to Europe. The reformulated blend stock for oxygenate blending futures crack is widening on the move of WTI to a discount, as gasoline needs to maintain certain import parity to Europe but as well to the physical cash differentials that are strengthening on the wider contango and the WTI discount to Brent.”

On Apr. 13, the International Energy Agency in Paris again raised its forecasts for both oil demand and crude production outside of the Organization of Petroleum Exporting Countries. “The IEA boosted 2010 global oil demand modestly by 30,000 b/d from last month's report to 86.6 million b/d, a 2% annual increase vs. their previous estimate of 1.8% growth and our assumption of a 1.2% raise,” Raymond James analysts reported. “Additionally, the group increased its supply forecasts for non-OPEC countries to 600,000 b/d of annual growth (from its previous forecast of a 220,000 b/d increase) and now expects those nations to average 52 million b/d production for all of 2010, a 1.2% year-over-year increase vs. our 0.9% assumption.”

They said, “The majority of the upped supply forecast was driven by increases from Canada, the UK, and Russia, though smaller increases were also included for the Congo, Malaysia, and Colombia. Non-OPEC countries supply roughly 60% of global oil.”

However, Raymond James analysts said, “While we are broadly in-line with the agency's non-OPEC supply numbers, we continue to believe it is being too aggressive on its demand assumptions.

Jakob said, “According to the IEA, crude stocks at sea have build by 10 million bbl in March (no details are provided but we would imagine this is the Iranian stock-build more than commercial stocks), while distillates on the water were reduced by 22 million bbl (but are double the levels of a year ago).

Energy prices
The May contract for benchmark US light, sweet crudes dropped 58¢ to $84.34/bbl Apr. 12 on the New York Mercantile Exchange. The June contract declined 35¢ to $85.28/bbl. On the US spot market, WTI at Cushing was down 58¢ to $84.34/bbl. Heating oil for May delivery dipped 0.71¢ to $2.22/gal on NYMEX. RBOB for the same month inched up 0.65¢ but closed essentially unchanged at a rounded average of $2.30/gal.

The May natural gas contract lost 6.2¢ to $4.01/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., jumped by 14¢ to $4.04/MMbtu.

In London, the May IPE contract for North Sea Brent crude decreased by 6¢ to $84.77/bbl. Gas oil for April was unchanged at $709.50/tonne.

The average price for OPEC’s basket of 12 reference crudes gained 23¢ to $82.20/bbl. So far this year, OPEC’s basket price has averaged $76.02/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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