MARKET WATCH
Crude futures contract ends 2-day rally

Sam Fletcher
Senior Writer

HOUSTON, Feb. 2 -- Energy prices retreated Feb. 1, ending a 2-day rally for crude in the New York futures market, after a lower-than-expected withdrawal of natural gas from US underground storage.

The US Energy Information Administration reported the withdrawal of 186 bcf of natural gas from underground storage for the week ended Jan. 26. That was below the consensus of Wall Street analysts and compared with withdrawals of 179 bcf the previous week and 88 bcf in the same period last year. Gas storage is now at 2.6 tcf, 152 bcf more than a year ago and 454 bcf above the 5-year average (OGJ Online, Feb. 1, 2007).

Still, the gas futures market partially rebounded in afternoon trading after the National Oceanic & Atmospheric Administration "predicted that the effects of El Nino (a major warming of the Pacific that usually starts around Christmastime) should be minimal for the rest of the winter season, as evidenced by more normal ocean temperatures presently," said analysts in the Houston office of Raymond James & Associates Inc. The National Weather Service's latest 6-10 day outlook is for below-normal temperatures in the Eastern two thirds of the country.

In the crude market, the March contract failed to break through the resistance barrier of $58.70/bbl "and led to a bail-out by the close" of the New York market, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. However, he said, "The draws in natural gas were slightly below expectations and kept a lid on the energy complex while gasoline is struggling to follow the rally. As a result, the energy relative values are under some pressure with both cracks and time-spreads weakening." The latest losses are not enough to reverse the upward price trend yet, Jakob said.

Raymond James analysts see "some support for [crude] prices in the high $50s as geopolitical risk reemerges." They said, "Oil unions in Nigeria are considering a strike [effective Feb. 5] as a response to violence in the Niger Delta." Moreover, they said, "Tension builds between Tehran and the US, which accuses Iran of interfering with affairs in Iraq."

Of the proposed strike among oil field workers in Nigeria, Jakob said, "There is a chance it would be delayed for another 2 weeks, but at time of this writing we have not found full confirmation yet."

Energy prices
The March natural gas contract traded at $7.31-7.94/MMbtu Feb. 1 before closing at $7.53/MMbtu, down 13.7¢ for the day on the New York Mercantile Exchange. On the US spot market, however, gas at Henry Hub, La., increased by 5.5¢ to $7.83/MMbtu.

The March contract for benchmark US light, sweet crudes dropped 84¢ to $57.30/bbl on NYMEX. The April contract lost 83¢ to $58.02/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 84¢ to $57.31/bbl. Heating oil for March delivery declined by 2.49¢ to $1.66/gal. The March contract for reformulated blend stock for oxygenate blending (RBOB) continued to erode, down 2.71¢ to $1.53/gal.

In London, the March IPE contract for North Sea Brent crude lost 68¢ to $56.72/bbl. However, gas oil for February gained $3 to $514.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by 87¢ to $53.39/bbl on Feb. 1.

Contact Sam Fletcher at samf@ogjonline.com.

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