MARKET WATCH: Crude continues climbing; gas price falls

The front-month crude contract climbed above $87/bbl in intraday trading Apr. 6 before closing up slightly in the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 7 -- The front-month crude contract climbed above $87/bbl in intraday trading Apr. 6 before closing up slightly in the New York market.

Minutes from the meeting of the Federal Open Market Committee (policy-making arm of the Federal Reserve Bank) suggested signs of an improving recovery and “drove crude into the black for the fourth straight day,” said analysts in the Houston office of Raymond James & Associates Inc.

Meanwhile, natural gas gave back nearly all of its gains from Apr. 5, falling 4.3%—“the most in more than 2 weeks,” said analysts at Pritchard Capital Partners LLC in New Orleans.

“Prices fell sharply as supply concerns came back to dog the market after the Energy Information Administration revised its US natural gas production outlook upward by 2.15 bcfd, or 3.7% for 2010, mainly due to the increase in number of rigs drilling for natural gas, while revising the demand outlook upward by only 850 MMcfd or 1.3%. The EIA now projects that US natural gas production will average 60.9 bcfd as compared to our estimate of 60.1 bcfd. We will be watching for the EIA’s Apr. 29 report for their revised methodology and how it will impact their current projections,” they said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “On a dollar-adjusted basis (i.e. in euro/bbl), the last time that crude oil was as high…in a rising trend was in April 2008 as crude oil was embarking in a bubble rally to $147/bbl. Given that we are currently in the same flat price configuration as in the spring of 2008, we find it useful to do a selective ‘then and now’ comparison to identify the parameters that could justify why we are returning to the 2008 oil prices.”

Jakob said, “Back in the spring of 2008, crude oil was in backwardation, distillates were in an extreme backwardation and driving an heating oil crack that was three times higher than today, natural gas prices were double current prices, the call on Organization of Petroleum Exporting Countries’ crude oil was 2.3 million b/d higher, the Organization for Economic Cooperation and Development stocks were 85 million bbl lower, OPEC spare capacity was 3.5 million b/d lower, and Atlantic Basin unemployment was lower by 14 million people.”

The oil rally in the spring of 2008 “proved to be a bubble” that helped bring the world economy to its knees. But compared with today’s market structure and fundamentals, Jakob said, “2008 seems to have had a greater price justification than today. Given that on a dollar-adjusted basis crude oil is now at the same level [as] in the spring of 2008, we will not hesitate very much in calling that crude oil is currently pricing a greater speculative bubble than in 2008.”

US inventories
The EIA said Apr. 7 commercial inventories of benchmark US crude increased by 2 million bbl to 356.2 million bbl in the week ended Apr. 2, 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.

The American Petroleum Institute earlier 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.

EIA reported imports of crude into the US increased by 501,000 b/d to 9.6 million b/d in the latest week. In the 4 weeks ended Apr. 2, US crude imports averaged 9.1 million b/d, down 109,000 b/d from the comparable period a year ago.

The input of crude into US refineries increased by 370,000 b/d to 14.6 million b/d in the latest week, with refineries operating at 84.5% of capacity. Gasoline production increased to 9.1 million b/d, while distillate fuel production increased to 4 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes crested at $87.09/bbl in intraday trading Apr. 6 before closing at $86.84/bbl, up 22¢ for the day on the New York Mercantile Exchange. It was “the highest settlement since Oct. 8, 2008, as the market continued its optimism for an economic recovery and higher demand growth for fuel in the US market,” said Pritchard Capital Partners.

The June contract gained 26¢ to $87.39/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased just 2¢ to $86.84/bbl, again in step with the front-month futures contract price. Heating oil for May delivery inched up 0.08¢ but closed essentially unchanged at $2.27/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped 0.19¢, also essentially unchanged at a closing of $2.35/gal. The May natural gas contract dropped 18.1¢ to $4.10/MMbtu on NYMEX.

In London, the May IPE contract for North Sea Brent crude was up 27¢ to $86.15/bbl. Gas oil for April gained $4.75 to $725.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased $1.28 to $82.59/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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