Energy prices finished mixed on Thursday, with both crude oil contracts ending modestly higher, but products lost some ground. Natural gas prices fared the worst, dropping to 6 1/2 year lows on account of a slightly higher-than-expected build in weekly inventories taking place amid weak demand conditions. Gas stocks now stand at 1.741 trillion cubic feet, 36% above last year and 23% above the five-year average. It should also be pointed out that our natural gas continuation charts do not show any real area of support for the complex until the $2.70 mark, a target we have been highlighting in our table for some weeks now.
Somewhat to our surprise, the bearish EIA data out Wednesday did not trigger any selling since the release of the data. Instead, given how well the crude oil market has held up, we suspect the market to remain steady through Friday. However, an unknown variable that could generate some unease over the next several days, are the “stress test” announcements coming out of Washington. Apparently, later in the day Friday, banks will get the preliminary results of a government review of their balance sheets, while the Federal Reserve will also release the methodology on how it is examining the banks. As more details are released --or leaked-- in the run-up to the May 4th final announcement, various markets could exhibit considerable volatility. It is worth repeating what we noted in previous commentary, namely, that the government is walking a fine line in its new role as a self-appointed “national bank analyst”, as it must be careful about what it says about the banks and how it says it. As a result, it is unlikely that we will be seeing substantial trends developing in any of the markets, energy included, until this important assessment is out of the way.
In Other News from Reuters...
* Out of Europe, it was reported Thursday that manufacturing and service industries contracted at their slowest pace in six months during April, signaling that the worst of the recession may be over. A composite index of activity posted its biggest gain on record, rising to 40.5 from 38.3 in March. (In fact, this report was likely behind the rally we had in the Euro on Thursday).
* US March sales of existing homes sales fell 3% percent to a lower-than-expected annual rate of 4.57 million units. Meanwhile, initial claims for the week came in exactly in line with the consensus estimate of 640,000, but continuing claims hit a new record, underscoring the difficulty of finding a job. We get March new home sales and durable goods orders data later on Friday.
* The US Treasury is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week, the New York Times reported on Thursday. The Treasury has apparently reached an agreement with the United Auto Workers to protect pensions and retiree health care benefits as a condition of the filing.
* OPEC seaborne oil exports, excluding Angola and Ecuador, will fall 130,000 barrels per day in the four weeks to May 9th, this according to consultancy firm Oil Movements. OPEC exports will average 22.27 million bpd in the period, down from 22.40 million bpd in the four weeks to April 11th. The firm said that OPEC’s compliance rate is about 80%, unchanged in recent weeks.
* Crude oil freight rates on major routes firmed on Thursday; VLCC export routes from the Middle East Gulf to Japan rose to W31.88 from W25.95 last week, while rates from the Gulf to the US rose to W23.38 from W19.88 in the week prior.
* Saudi Arabia said it would pump about the same amount of crude in May as in April. “They are not cutting output overall,” one senior oil executive said. “It is about the same.” Supply has been steady since February at just under 8 million barrels per day, sources tell Reuters.
* Shell Oil, the Sierra Club and a Texas environmental group agreed on Thursday to a multimillion-dollar settlement of a federal Clean Air Act lawsuit against Shell. Under the terms of the settlement, the company will undertake to cut pollution at its 329,800-barrel-per-day Deer Park in Texas by upgrading the refinery’s coking unit and chemical plant flare system. It will also pay a civil penalty of $5.8 million.
* The US is “extremely concerned” about the security situation in Pakistan, the White House said on Thursday, as Taliban militants push closer to the capital Islamabad.
* Suppliers, brokers, insurers and tankers carrying gasoline to Iran could face US sanctions if a bill making the rounds in the House of Representatives finds support, Reuters reports. Republican representative Mark Kirk introduced the Iran Diplomatic Enhancement Act late Wednesday. The bill identified six companies who could be in potential violation of the Act, as they are Iran’s main suppliers. They include Vitol, Glencore International, Trafigura, France’s Total, and India’s Reliance Industries.
* European stocks of gasoline in independent storage at the Amsterdam-Rotterdam-Antwerp hub rose by 50,000 tons to 854,000 tons last week, this according to Dutch oil analyst Pieter Kulsen; no exports have been going to the US for some time now.
European North Sea crude oil quotes as reported by Reuters: Three Forties cargoes for May 5-7, May 6-8 and May 8-10 were offered on Thursday, trading anywhere from dated BFOE flat to dated minus 55 cents. Oseberg was at dated plus 50c, down 10c from Wednesday, while Statfjord for May 22 -24 went at dated +30c.
U.S. gasoline/distillate quotes as reported by Reuters: Trading was very quiet, with M2 offered at 9.80c under May RBOB, with same-cycle M1 trading at a 4c regrade. Heating oil was pegged at 4.00/3.75c under May. In New York harbor, M2 conventional regular was pegged at May minus 3.50-4.40c. Low-sulfur diesel was unchanged with bids at even, while ULSD diesel was offered at 6.50c over May. Jet fuel was flat at 1.50c over, with heating oil offered at 0.85c under May.
