Oil

By Kishori Krishnan Exclusive To Crude Investing News

Recent dismal economic data and growing U.S. inventories kept oil prices below $50 a barrel Friday despite hopes of a possible second-half recovery in crude demand. Benchmark crude for May delivery fell 40 cents to $49.58 a barrel by Noon in European electronic trading on the New York Mercantile Exchange. The contract on Thursday rose 73 cents to settle at $49.98, an AP report said.

Oil prices have bobbed around $50 a barrel this month as the current backdrop of high unemployment, weak consumer demand and falling corporate profits has tempered investor optimism about an eventual economic rebound. “We know there will be a recovery, people are just wary about when it will happen,” said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney “We need better economic news to break it out of this range.”

Weak crude demand and rising inventories have kept prices from rising higher. Storage facilities for crude oil in the U.S. have been swelling since the end of February, bloating to a nearly 19-year high last week. The signs were clear though. U.S. fuel consumption in the first quarter fell to the lowest for that period in 11 years, the American Petroleum Institute said yesterday in its monthly report.

U.S. crude-oil inventories rose by 5.67 million barrels to 366.7 million last week, the highest since September 1990, the Energy Department said April 15. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 per cent less than during the same period in 2008, the industry-funded API said.

“We still have a picture of very low demand and a picture of stock builds,” said Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix Gmbh. “That is why crude oil is not able to move any higher.”

“There is a risk prices will fall” further below $50 a barrel, because of “too much optimism,” about an economic recovery, said Sintje Diek, an HSH Nordbank analyst in Hamburg. “Oil demand is still weak,” she said. On April 9, oil prices had jumped, when it continued to draw support from a smaller-than-expected rise in crude reserves in key energy consumer – the United States.

Prices had received a boost from the latest US Energy report, which showed the country’s crude stocks had increased by a smaller margin than the industry had forecast, analysts said. The weekly Department of Energy report showed crude reserves rose by 1.6 million barrels in the week ending April 3, lower than the gain of 1.9 million barrels that analysts polled by Dow Jones Newswires had predicted.  “The increase in US crude oil inventories was less than some had feared,” said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney.

Company News

PetroChina Co., (NYSE: PTR) Asia’s biggest crude producer, plans to pay as much as $1.4 billion for a stake in an oil company in Kazakhstan to take advantage of lower commodity prices and expand overseas, Chairman Jiang Jiemin said. PetroChina is buying 50 per cent of AO Mangistaumunaigas through its unit CNPC Exploration & Development Co., Jiang said in an interview in Beijing on Thursday. Kazakhstan’s state-owned KazMunaiGaz National Co. will own the rest, he said.

China and Kazakhstan signed 11 accords on April 17, 2009, and agreed on $10 billion in loans to the Central Asian nation in return for the right to invest in Mangistaumunaigas. China is securing energy resources to feed its economy, the world’s third largest, by providing loans to Brazil, Russia and Venezuela.

The oil refinery deal between Sunoco Inc. (SUN) and Holly Corp. (HOC) is unlikely to trigger a string of similar transactions, even though it signals that asset values have hit a 15-year low. Sunoco has agreed to sell its Tulsa, Okla., refinery to Holly for $65 million, a price tag that covers the cost of an oil product terminal and land but barely takes the refinery units into account.

The deal values the facility at $228 per complexity barrel, an indicator used by analysts to compare deals on a standardized basis. By this measure, the Tulsa plant’s valuation is less than half of that for a Louisiana refinery, which was sold in July 2008, before the credit crisis reached fever pitch and the global economic downturn came into full force. Today’s valuation for Sunoco’s Tulsa refinery is well below that seen for refining assets at their high in 2007 and more in line with 1990′s prices.

Would-be oil sands developer UTS Energy Corp (UTS.T) rejected a sweetened C$830 million takeover bid from French oil major Total SA (TOT) late Thursday, saying the increased price was still “inadequate.” The Calgary-based firm’s board of directors unanimously rejected the C$1.75-a-share offer Total made Monday, which was raised from the initial C$1.30-a-share offer made in January. The new offer still doesn’t reflect the value of UTS’ cash holdings or the company’s main asset, a 20 per cent stake in the delayed Fort Hills oil sands project in northern Alberta, UTS said in a statement.

Meanwhile, the proposed takeover of Petro-Canada (PCZ) – the project leader of Fort Hills – by oil sands giant Suncor Energy Inc (SU) is expected to boost the development’s economics. 

India’s largest state run refiner, Indian Oil Corp (IOC), bought four million barrels of West African crude oil via its third tender for June loading sweet crude on Thursday, traders said. IOC bought one Very Large Crude Carrier (VLCC), or two million barrels, of Nigerian Qua Iboe and another VLCC made up of one million barrels each of Qua Iboe and Angolan Plutonio crude oil, according to a Reuter report.

Iraq, which has 70 new oil wells ready to pump, has asked oil firms Nippon Oil of Japan (5001.T), Eni (ENI.MI) of Italy and Repsol (REP.MC) of Spain to resubmit bids for developing the Nassiriya oil field, Oil Minister Hussain al-Shahristani said. Iraq needs foreign companies to invest in drilling more oil wells as it does not have the capacity on its own to more than double national output of 2.3-2.4 million barrels per day of crude.

Iraq holds the world’s third largest proven oil reserves, but the fields are largely underexploited due to decades of war, international sanctions and underinvestment.