MARKET WATCH: Energy prices fall in weakening market

Energy prices generally fell across the board May 2 as markets came under pressure from weak economic data from both the US and Europe.

“Broader markets took a breather yesterday, with the Standard & Poor’s 500 Index finishing the day slightly in the red as manufacturing data from the Euro-zone and US private sector jobs data came in below expectations,” said analysts in the Houston office of Raymond James & Associates Inc.

“With US crude inventories soaring to their highest level in 20 years (6 straight weeks of builds), oil followed the broader market lower, finishing the day down roughly 1% in the [New York] session. After a 3-day rally, natural gas traded heavily to the downside, declining by 5.2% for the day as a combination of near-term profit-taking and moderate weather forecasts led to the selling. Energy stocks underperformed the broader market, with the Oil Service Index declining 1.1% and the SIG Oil Exploration & Production Index falling a hefty 3.9% for the session,” they said.

The US report on hiring in the private sector was “lower than expected at 119,000 [new jobs] and translates into a risk of a lower-than-expected nonfarm payroll number tomorrow,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “The Euro-zone unemployment number for March…shows a continued increased to 10.9% (up 1% vs. a year ago and a linear 0.1% monthly increase since last July).”

Jakob reported, “Based on some of the preliminary April employment numbers and the worsening purchasing manager's indexes, it is not taking a big risk to say that the next publication will show another increase in European unemployment. This is also what austerity is supposed to bring. Unemployment for the under-25 in Spain is at 51.1% compared with 7.9% in Germany, and managing a Euro-zone where there is such a divergence in social and financial conditions remains a huge challenge. Today there will be some focus on the European Central Bank decision on rates and on the comments that follow; yesterday the euro-dollar [valuation] took a hit on the worse-than-expected European PMI numbers.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Oil products were also sold despite another week of sizable product inventory draws in the US. Term spreads in Brent were also sold as crude demand remained lackluster.”

Gasoline

Reformulated stock for oxygenate blending gasoline on the New York market was the best performer across the oil complex during the first quarter with a gain of more than 25% for the front-month contract. “The market was driven by a crowded trade of being long gasoline amid uncertainty over the futures of several European refineries and the US East Coast refineries,” said Zhang.

However, he reported, “Since the beginning of April, the gasoline market ran out of steam quickly as long positions were exited. Clearly, the market has run ahead of market fundamentals on three fronts.”

To begin with, he said, “US gasoline demand is falling fast amid a fragile economic recovery and very high oil prices. Total US gasoline demand has fallen significantly below its previous 5-year range. A weak job market and improving passenger car fuel efficiency have both played big roles in keeping the demand down.”

Next, he said, “A much-feared supply crunch for gasoline in the Atlantic Basin appeared to have abated. On the US East Coast, the Trainer refinery will most likely be back up and running in the third quarter this year, and Delta Airlines is to keep Chevron’s Philadelphia refinery running. In Europe, Petroplus Holdings AG’s Antwerp refinery is reported to be starting in the next few days after being bought by Gunvor Group.” Meanwhile, a joint venture consortium between Vitol Group and AtlasInvest has acquired another Petroplus refinery in Cressier.

Finally, Zhang said, “Gasoline inventories in the US remain comfortable, especially viewed through days of supply, which take into account rapid demand decline…. US gasoline inventories measured by days of supply have been above their 5-year range since the beginning of this year.”

Zhang said, “With the US driving season officially starting in a few weeks’ time, the bullish gasoline story appears to be over already, which has been reflected in the sharp sell-off in gasoline cracks and its time spreads. The weakness has already started to weigh on refinery margins, which will in turn keep the pressure on the oil market in general.”

US inventories

The Energy Information Administration reported the injection of 28 bcf of natural gas into US underground storage in the week ended Apr. 27, below Wall Street’s consensus of a 30 bcf input. That brought working gas in storage to nearly 2.6 tcf, up 840 bcf from a year ago and 857 bcf above the 5-year average.

Earlier the EIA said commercial US crude inventories increased 2.8 million bbl to 375.9 million bbl in the same week. That was up from Wall Street’s consensus for a 2.5 million bbl gain. Gasoline stocks fell 2 million bbl to 209.7 million bbl, exceeding the Street’s expectation of a 1.5 million bbl decline. Both finished gasoline and blending components were down last week. Distillate fuel inventories dropped 1.9 million bbl to 124 million bbl. Analysts expected a smaller loss of 400,000 bbl (OGJ Online, May 2, 2012).

The EIA report “showed a total stock build of 1.9 million bbl, which brings total stocks 28.5 million bbl above last year’s stock levels,” Jakob said. “That stock surplus remains mostly in propane and natural gas plant liquids. The main stocks of crude plus clean petroleum products are 7 million bbl below last year’s levels, with a big 21 million bbl deficit in distillates partially offset by a 10 million bbl surplus in crude oil and 8 million bbl in gasoline and ethanol.” He noted, “Stocks of distillates continue to trend down and are approaching the 2007 levels while gasoline stocks are closer to their normal seasonal patterns and stock levels of previous years.”

Jakob said, “Mexico imports of gasoline in March (60% of US gasoline exports) was at high level (473,000 b/d, up 70,000 b/d vs. a year ago and up 151,000 b/d vs. February) even though domestic sales were unchanged from a year ago. Refinery production of gasoline was, however, 23,000 b/d lower than a year ago. Imports of diesel on the other hand were down 20,000 b/d vs. last year.”

He said, “West Africa has been a strong support for gasoline in the first quarter, and we will have to see if a war-risk premium starts to be asked for West Africa-at-large since a 76,000 tonne product tanker was ‘forcibly removed’ from anchorage off Lome, Togo, over the weekend and has disappeared from the radar screens since.” The Singapore-managed LR1 vessel ‘BW Rhine,’ loaded with gasoline apparently was high jacked by pirates.

Energy prices

The June contract for benchmark US sweet, light crudes lost 94¢ to $105.22/bbl May 2 on the New York Mercantile Exchange. The July contract dropped 92¢ to $105.58/bbl. On the US spot market, WTI at Cushing, Okla., was down 94¢ to $105.22/bbl.

Heating oil for June delivery declined 3.46¢ to $3.14/gal on NYMEX. RBOB for the same month decreased 2.14¢ to $3.08/gal.

The June natural gas contract fell 11.8¢ to $2.25/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., remained unchanged at $2.29/MMbtu.

In London, the June IPE contract for North Sea Brent was down $1.46 to $118.20/bbl. Gas oil for May dropped $14 to $999.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 40¢ to $116.68/bbl.

Contact Sam Fletcher at [email protected].