MARKET WATCH: Crude, natural gas prices climb

The price of crude rebounded, up 2% in heavy trading, and natural gas continued to climb Apr. 14 on the New York market after the Energy Information Administration reported the first drop in US oil inventories in 11 weeks.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 15 -- The price of crude rebounded, up 2% in heavy trading, and natural gas continued to climb Apr. 14 on the New York market after the Energy Information Administration reported the first drop in US oil inventories in 11 weeks.

“Natural gas closed the day up 4%, emerging back into the $4/Mcf range,” said analysts in the Houston office of Raymond James & Associates Inc. “Oil has since pulled back some, falling below $86/bbl [in early trading Apr. 15] as a stronger dollar sways investors towards other investments.”

The Department of Energy’s EIA reported the injection of 87 bcf of natural gas into US underground storage in the week ended Apr. 9, surpassing the Wall Street consensus for an 80 bcf increase. That brought working gas in storage to 1.8 tcf, up 64 bcf from year-ago level and 246 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories fell 2.2 million bbl to 354 million bbl in the week ended Apr. 9 when Wall Street analysts expected an increase of 1.3 million bbl. Gasoline stocks dropped 1.1 million bbl to 221.3 million bbl in the same period, slightly beyond Wall Street’s consensus for a 1 million bbl decrease. Distillate fuel inventories increased by 1.1 million bbl to 146.8 million bbl, slightly above Wall Street expectations of a 1 million bbl build (OGJ Online, Apr. 14, 2010).

“We could pretend that oil was higher yesterday on the back of a stock draw reported by the DOE, but we do not think that the overall draw of 300,000 bbl [from total petroleum inventories] was that great of a game-changer,” said Olivier Jakob at Petromatrix in Zug, Switzerland. Instead, the surge of trading volume to a record high on Apr. 13 “was a show of force from the financial flows that want to be in oil on the back of improving macroeconomic data.” Jakob said, “If the DOE data was no great deal, the US retail sales data was particularly strong, showing a 4.2% annual growth when excluding cars and gasoline, to a dollar amount level [that] is a match to early 2008. China’s first quarter gross domestic product was up 11.9%, a number which was, however expected, and that benefits from some of the low first quarter 2009 base effect.”

The trading volume on Apr. 14 was not as high as the previous session’s record. “But at 1.1 million contracts (West Texas Intermediate physical) it is still on the higher end of recent ranges. The volume seen in WTI over the last 5 trading days is a new playing field; the paradox, however, is that open interest is not showing anything particular,” Jakob said. “WTI open interest has been slowly rising since the start of the month, but the net [increase] of 6,200 contracts on ‘super-Tuesday’ was a total nonevent. This divergence between the trend in WTI volume and WTI open interest is a cause for concern in a world where high frequency trading is not a receding trend.”

Jakob said, “The paradox of the current economy is that at face-value it is so strong that equities (and oil) are racing towards 2008 levels, yet it is apparently so weak that it requires record low interest rates. If not, then we will have to expect that the Federal Reserve System starts to be more nervous about being once again behind the curve.”

Energy prices
The May contract for benchmark US sweet, light crudes regained $1.79 to $85.84/bbl Apr. 14 on the New York Mercantile Exchange. The June contract climbed $1.62 to $86.73/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.79 to $85.84/bbl. Heating oil for May delivery gained 2.79¢ to $2.24/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month continued to rise, up 2.34¢ to $2.33/gal.

The May contract for natural gas increased 3.9¢ to $4.20/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped by 14.5¢ to $4.16/MMbtu.

In London, the May IPE contract for North Sea Brent advanced $1.43 to $86.15/bbl, still at a premium to front-month US crude in the New York futures market. Gas oil for May increased $14.50 to $714.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.11 to $82.63/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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