MARKET WATCH: Crude ends 2-day rally
Sam Fletcher
OGJ Senior Writer
HOUSTON, Feb. 4 -- Energy prices declined Feb. 3 with the front-month crude contract slipping below $77/bbl, ending a 2-day rally in the New York market despite a bullish government report on US inventories.
“Total petroleum inventories had a smaller-than-expected build of 100,000 bbl vs. consensus at a build of 600,000 bbl. Energy stocks inched lower on the day as well, in line with the broader market. Natural gas finished a bit lower,” said analysts in the Houston office of Raymond James & Associates Inc.
Factors affecting the market included the strengthening US dollar and traders’ worries about reduced demand.
The crude futures market is suffering from the “inverted Toyota syndrome,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Some pools of liquidity are still trying to drive crude oil futures’ pedal to the metal, but the vehicle is stalling due to a failing fundamental accelerator. In our opinion, the markets dynamics in the fourth quarter of 2009 and so far this year are the same: some market participants are still trying and hoping to provoke a technical replication of the 2008 rally, but unconvincing fundamentals are still capping advances in flat price because an higher oil price does not offer any ‘solver economics’ to a global supply and demand system that is still in over-capacity both in the upstream and the downstream.”
Jakob said, “Crude oil futures are still a commodity of liquidity rather than a commodity of a liquid and because of that they are pricing an inverted relationship to the state of the US economy: better US economic data is bearish for crude because it increases the chances of an interest rate increase; worse economic data is bullish because it reduces the chances of a hike in rates.”
Jacob noted, “There is some growing oil demand in Asia, there are some signs of a bottoming in the industrial destruction process, so the issue is not to paint a full doomsday scenario on oil. But crude oil is pricing [near] $77/bbl, not $37/bbl, and at current price levels we find it difficult to say that crude is undervalued to the global supply and demand.”
US inventories
The Energy Information Administration reported the withdrawal of 115 bcf of natural gas from US underground storage in the week ended Jan. 29, below the consensus range of 123-124 bcf. That left 2.4 tcf of working gas still in storage, up 199 bcf from year-ago levels and 150 bcf above the 5-year average.
EIA earlier reported US crude inventories increased 2.3 million bbl to 329 million bbl in the week ended Jan. 29. Gasoline stocks fell 1.3 million bbl to 228.1 million bbl. Distillate fuel inventories dropped 1 million bbl to 156.5 million bbl (OGJ Online, Feb. 3, 2010).
Paul Horsnell, managing director and head of commodities research at Barclays Capital in London, said, “The wait for more constructive distillate demand data continues, and we suggest that the potential scale of upside for distillate cracks may be heavily bounded even when the demand rebound is more evident in the data.”
He said, “While there is some evidence of trucking demand having bottomed out and starting to rise, so far the reduction in global distillate inventories has been primarily driven by cold weather rather than overt evidence of a snap-back in diesel demand. Indeed, the year-over-year indications for total US distillate demand remain rather weak. However, the evidence of a recovery in manufacturing, better trucking indications, and a slow turning of the manufacturing goods inventory cycle all still point to an improvement in diesel demand that will eventually percolate through to the data, either in its weekly form or in the later monthly revisions.”
Jakob said, “The Environmental Protection Agency released yesterday the new biofuels mandate for 2010, which calls for a 1.85 billion gal increase from 2009 to 2010. This would represent an increase of about 110,000 b/d on ethanol, and that means that most if not all of the potential demand increase for gasoline in 2010 will be taken by biofuels rather than by petroleum products. Over the last 3 years, US blending of ethanol has displaced about 900,000 b/d of US crude oil demand (on a 46% gasoline yield basis).”
Energy prices
The March contract for benchmark US sweet, light crudes declined 25¢ to $76.98/bbl Feb. 3 on the New York Mercantile Exchange. The April contract was down 29¢ to $77.43/bbl. Heating oil for March delivery retreated 1.23¢ to $2.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month continued to rise, however, up 1.83¢ to $2.04/gal.
The March natural gas contract dropped 3.5¢ to $5.42/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased by 6¢ to $5.54/MMbtu.
In London, the March IPE contract for North Sea Brent crude lost 14¢ to $75.92/bbl. Gas oil for February continued climbing, up $15 to $617.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $2.09 to $75.14/bbl.
Contact Sam Fletcher at [email protected].