Rapid Power Management

Crude Oil Price: $92.56

Oil Benchmarks Move Closer Together, Even As They Fall

Operators of a pipeline that will transport crude from its U.S. Midwest storage hub to the Gulf Coast’s refinery complex announced it will open the spigots this weekend. The move will reduce a vast glut of oil that has pooled in the middle of the country and narrowed the difference between the oil market’s two benchmark contracts.

The spread between the contracts for West Texas Intermediate, the U.S. benchmark, and Brent, the European standard, contracted nearly $2 Thursday, to $14.93.

The flow of crude through the reversed Seaway pipeline, running from Cushing, Okla., to the Gulf, is expected to bring the two benchmarks closer to parity. The difference between the two contracts was more than $19 early last month.

Historically, the contracts usually traded within pennies of each other, but a large gap opened up in the last two years. WTI was weighed down by the excess supply bottled up in the Midwest; Brent was pushed up as Middle East tensions raised supply concerns.

Though the news was generally bullish for U.S. crude prices, the West Texas contract still fell on Thursday, settling down 25 cents, or 0.3%, to $92.56 a barrel on the New York Mercantile Exchange. The Brent contract fell by an even larger $2.26, or 2.1%, to $107.49.

Both contracts were beset by the continued move against risk assets in the markets and a sour economic outlook, weighed down by European financial woes and weak U.S. readings on employment and regional business activity.

Still, supply-demand fundamentals have been deteriorating in the oil markets, with U.S. government data showing inventories at a 22-year high, rising more than 10% in the last eight weeks on a combination of weakening demand and growing supply.

Though the Seaway pipeline is expected to carry 150,000 barrels a day to the Gulf, some analysts and traders say it won’t be enough to reduce the growing U.S. supply glut at Cushing anytime soon–and maybe not even after its capacity is expanded to 400,000 barrels per day early next year.

“There are certainly those that believe even if you get to 350,000 or 400,000, it still won’t alleviate oversupply,” said Tom Bentz, director of BNP Paribas Prime Brokerage. “Right now, 150,0000 is not going to do it.”

Nymex oil futures have fallen 16.3% from their highs earlier this year amid geopolitical tensions between Iran and the West, and 12.8% since the start of the month as financial conditions in Europe have turned south once again. Thursday’s loss marked the fifth consecutive new low settlement for 2012, and analysts and traders say they see little upside to the market anytime soon.

“This is a steep and damaging drop in oil prices that will have implications for the foreseeable future,” Dominick Chirichella of the Energy Management Institute said in a note. “The uptrend that was in place since late last year (mostly geopolitically driven) has been broken and all technical signs point to a sustained downward trend going forward.”

Front-month June reformulated gasoline blendstock, or RBOB, settled down 4.27 cents, at $2.8782 a gallon, its lowest level since Feb. 2. June heating oil finished down 4.86 cents, at $2.8490 a gallon.

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Crude Oil Price: $97.08

Crude Ends Modestly Higher After 6-Day, 8.8% Fall

U.S. crude oil futures settled modestly higher Thursday, snapping a six-day losing streak that slashed prices by 8.8% to three-month lows.

Traders said the gain doesn’t upset the recent trend in the nervous and oversupplied market, with little sign that crude soon will add back the $9 a barrel shed this month. Prices failed to extend losses below Wednesday’s low of $95.17 or top $98, a would-be milestone for a further recovery.

Prices haven’t topped $100 a barrel since a week ago, when Abdulla Salem El-Badri, the secretary general of the Organization of Petroleum Exporting Countries, called oil prices too high and said they threaten to cause demand destruction. OPEC will keep output high, aiming to knock international prices below the century level, he said.

OPEC said in its monthly oil report Thursday that April output, estimated by independent sources, rose by 320,000 barrels a day from March. That’s eight times more than the 40,000 barrels a day OPEC increased its global demand forecast by in the same report.

“That’s not an argument for higher prices,” says Tim Evans, analyst Citi Futures Perspective.

OPEC said it expects global demand to rise 900,000 barrels a day, to about 88.7 million barrels a day, a figure that is in line with the latest projection from the U.S. Energy Information Administration.

Light, sweet crude oil for June delivery on the New York Mercantile Exchange settled 27 cents higher, at $97.08 a barrel.

ICE June North Sea Brent crude settled 47 cents lower, at $112.73 a barrel, matching Tuesday’s price, which was the lowest since Feb. 2.

Traders said the pause in the downfall came amid light volume and position adjustments by commodity funds, which normally roll their holdings into the forward contracts around this time of the month. Nymex June crude’s discount to July narrowed by 1 cent to 33 cents a barrel, the slimmest spread since Feb. 16. At the May crude expiration on April 20, the front-month discount to the second month was 83 cents a barrel.

Crude prices have been battered in recent days as U.S. crude inventories have risen to the highest level since August 1990. The EIA forecasts that refiners, returning from seasonal maintenance, will boost processing rates to 15.1 million barrels a day this month, more than 300,000 barrels a day above current levels. But crude stocks are expected to end May at their highest level for the month since 1981.

The market is still facing the “same lousy fundamentals that have been hiding in plain sight for some time,” said Evans. “People don’t know what to do: Buy the dip or dump long positions?”

Reformulated gasoline blendstock futures for June delivery settled 1.39 cents lower, at $301.02 a gallon. June heating oil settled 1.57 cents lower, at $2.9834 a gallon.

www.rigzone.com