MARKET WATCH: Crude ends 5-day rally

Energy prices fell Feb. 23 with crude dropping from a near 6-week high to end a 5-day rally in the New York market, undercut by sagging consumer confidence.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 24 -- Energy prices fell Feb. 23 with crude dropping from a near 6-week high to end a 5-day rally in the New York market, undercut by sagging consumer confidence.

“Crude was unable to stay afloat above $80/bbl and fell along with stocks yesterday as the . . . Consumer Confidence Index unexpectedly dropped from 56.5 in January to 46 in February, the lowest level in 10 months,” said analysts at Pritchard Capital Partners LLC in New Orleans.

In Houston, analysts at Raymond James & Associates Inc. said, “Oil retreated nearly 2% yesterday, breaking its recent streak of gains before the front-month contract rolled over to an April delivery.” They added, “Alongside oil, energy stocks fell twice as hard compared to the broader market (Dow Jones Industrial Average down 1%, while the Oil Service Index and Standard & Poor’s E&P 1500 fell 2%) as the dollar climbed against the euro. Natural gas fell through $5/Mcf earlier this week and continued to slide, down more than 2% on the day. With all the red on our screens yesterday, we hope that the recent cold weather will give commodity prices a bump (although it has not helped in recent weeks).” Gas and oil prices were “flattish” in early trading Feb. 24.

Pritchard Capital Partners said, “Cold weather reports continue to lose price-driving power to traders. Overall market sentiment is there is not enough winter left to adequately draw down inventories with milder temperatures anticipated in the last weeks of the winter natural gas draw season. Bias is still to the downside today, the last day before the March contract expires.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Equity markets took a hit yesterday after the US consumer sentiment report came out much worse than expected. In our recent reports we have been highlighting what we see as growing warning signs on oil demand (stagnant vehicles-miles-traveled, airline fuel surcharge starting to reappear, emerging countries being forced to increase the internal subsidized prices), and lower consumer confidence will be added to the list. The economic ‘recovery’ of 2009 was not fueled with oil at $80/bbl, and we are growing more confident that crude oil prices above $85/bbl will be difficult to sustain without creating another cycle of demand destruction.”

The MasterCard Spending Pulse report of US gasoline sales at the pump was up 5.8% for the week. “But that is mainly a lag effect of the previous week’s very slow sales due to the snow storms,” Jakob said. On the 4-week average US gasoline sales at the pump are reported up 0.5% from the same period last year.

Moreover, Jakob said, “The two supply concerns of last week are about to be resolved. First, cargoes have been added back to the Forties supply chain, indicating that the production issues on the Buzzard field [in the North Sea] are likely to be resolved much earlier than expected (OGJ Online, Feb. 18, 2010). Second, even if they still have to formally vote on it only today, the unions have called off the strike movement against the Total [SA] refineries in France (OGJ Online, Feb. 23. 2010). The gasoline crack has started to correct lower . . . and it could continue to do so today as large speculators are still very long on gasoline while there will be no supply crisis in France.”

US inventories
The Energy Information Administration said Feb. 24 commercial US crude inventories climbed by 3 million bbl to 337.5 million bbl in the week ended Feb. 19, exceeding the Wall Street consensus for a 1.9 million bbl increase. Gasoline stocks dropped 900,000 bbl to 231.2 million bbl, counter to analysts’ expectations of a 600,000 bbl build. Distillate fuel inventories were down 600,000 bbl to 152.7 million bbl, less than the 1.5 million bbl drop anticipated on Wall Street.

The American Petroleum Institute earlier reported a 3.1 million bbl draw in crude, a 1.7 million bbl increase in gasoline, and an 834,000 bbl decrease in distillates.

Imports of crude into the US increased by 536,000 b/d to 9.1 million b/d in the latest week, EIA reported. In the 4 weeks through Feb. 19, US imports of crude averaged 8.6 million b/d, down 836,000 b/d from the comparable period in 2009.

The input of crude into US refineries increased by 335,000 b/d to 14.1 million b/d last week with units operating at 81.2% of capacity. Gasoline production increased to 8.9 million b/d, and distillate fuel production increased to 3.6 million b/d, according to EIA.

Energy prices
The April contract for benchmark US light, sweet crudes dropped $1.45 to $78.86/bbl Feb. 23 on the New York Mercantile Exchange. The May contract fell $1.43 to $79.29/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.30 to $78.86/bbl. Heating oil for March delivery declined 4.65¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 5.02¢ to $2.07/gal.

The March natural gas contract continued falling, down 11.7¢ to $4.78/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $4.92/MMbtu.

In London, the April IPE contract for North Sea Brent crude lost $1.36 to $77.25/bbl. Gas oil for March dropped $8.50 to $628.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell 39¢ to $75.75/bbl.

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