MARKET WATCH
Crude futures top $58/bbl in New York market

Sam Fletcher
Senior Writer

HOUSTON, Feb. 1 -- Energy prices generally shot up Jan. 31 with the front-month crude price closing above $58/bbl at the highest level since the start of 2007 amid forecasts for continued cold weather in the US Midwest and Northeast.

Earlier that day, the US Energy Information Administration said US distillate fuel inventories fell by 2.6 million bbl to 140 million bbl in the week ended Jan. 26, with a drop in heating oil offsetting a rise in diesel fuel. That marked the first decline in distillate inventory in 7 weeks. US crude inventories increased for the third week, up by 2.5 million bbl to 324.9 million bbl. Gasoline stocks jumped by 3.8 million bbl to 224.6 million bbl in the same period (OGJ Online, Jan. 31, 2007).

"The gasoline stock build was higher than expected due to high imports, but the gasoline demand was very robust while the cold weather started to draw down heating oil stocks in the Northeast," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

EIA data were again "used as a buying opportunity for the third week in a row" in the New York market, Jakob said. The positive momentum of the current oil market "has been now more clearly defined" and would require a new breakthrough of market support at $55/bbl before being reversed, he said. Expiration of the February contracts for petroleum products on the New York market also contributed to the volatility of prices during the Jan. 31 trading session.

Moreover, Jakob said, "The dollar has weakened and gold was firmer ahead of crude oil. Gold has now broken the $650[/troy oz.] resistance." Continued geopolitical uncertainties in the Middle East should reinforce the need of crude oil as an asset hedge, especially as crude remains under priced vs. gold."

Except for Iraq, which is still struggling to regain prewar production levels, and new member Angola, which was not a party to the December agreement, the other 10 OPEC members are scheduled to reduce their total crude production by 500,000 b/d effective Feb. 1. That possibility almost certainly had some effect on Jan. 31 energy markets. However, analysts in the Houston office of Raymond James & Associates Inc. estimated OPEC members have cut only 750,000 b/d of the 1.2 million b/d of crude that they earlier pledged to reduce, effective December.

Energy prices
The March contract for benchmark US sweet, light crudes gained $1.17 to $58.14/bbl Jan. 31 on the New York Mercantile Exchange. The April contract escalated by $1.19 to $58.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $1.17 to $58.15/bbl. Heating oil for February delivery advanced by 1.66¢ to $1.65/gal on NYMEX. However, the February contract for reformulated blend stock for oxygenate blending (RBOB) lost 2.04¢ to $1.50/gal.

The March natural gas contract declined by 7.3¢ to $7.67/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., climbed by 48¢ to $7.78/MMbtu. EIA reported Feb. 1 the withdrawal of 186 bcf of natural gas from US 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. "Consistent cold weather remains the name of the game" in the gas market, said Raymond James analysts.

In London, the March IPE contract for North Sea Brent crude gained $1.01 to $57.40/bbl. Gas oil for February jumped by $19 to $511.75/tonne.

The average price for OPEC's basket of 11 benchmark crudes escalated by $1.80 to $52.52/bbl on Jan. 31.

Contact Sam Fletcher at samf@ogjonline.com.

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