MARKET WATCH: Economic gains, weak dollar boost energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 17 -- Energy prices rebounded Nov. 16 from a two-session decline with crude up 3.3% with larger than expected US retail sales and growth in Japan’s gross national product.

“Crude also piggybacked on a weak dollar, which was at its lowest since August 2008,” said analysts in the Houston office of Raymond James & Associates Inc.

In New Orleans, analysts at Pritchard Capital Partners LLC reported, “The dollar fell following comments from the Asian-Pacific Economic Cooperation group that they will continue with stimulus programs in order to ensure economic growth and comments from Federal Reserve Chairman Ben Bernanke that ‘significant economic challenges remain.’ Both comments imply the governments across the globe will keep the stimulus spigot wide open.”

They said, “At the close of the equity market, the US Dollar Index was trading below the 75 support level. The low for the dollar index was 70.7 on Mar. 17, 2008, and this could be the next level the index tests. If the dollar continues to weaken and tests this level, then crude and commodities should remain a good market.”

However, the dollar rebounded in early trading Nov. 17 after the Federal Reserve reported a smaller-than-expected 0.1% increase in US industrial production to 0.4% in October, down from a 0.6% gain in September. As a result, analysts projected US unemployment could increase to 11% by mid-2010 from the current 10.2% rate.

The front-month natural gas contract rose 4.4% in the New York market Nov. 16, “following Henry Hub cash prices which began to reverse last week's losses with a gain of 9.8%,” said Raymond James analysts.

Pritchard Capital Partners said, “Natural gas received support from Devon Energy Corp.’s announcement that [it] would sell its international and Gulf of Mexico assets in order to focus on the development of North American assets. [Devon’s] decision implies it favorably views the long term prospects for natural gas in North America.” After the sale, Devon’s proved reserves should be 41% liquids and 59% gas, compared to 43% liquids and 57% gas today, “so the suggested divestitures will not change the composition of its proved reserves significantly but does suggest as optimistic outlook for US natural gas,” said Pritchard Capital analysts.

They added, “Energy Investor T. Boone Pickens of BP Capital showed his confidence in US natural gas plays by increasing stakes in Anadarko Petroleum Corp., Cabot Oil & Gas Corp., Chesapeake Energy Corp., Devon, and Forest Oil Corp. BP Capital also announced stakes in Hess Corp., Gastar Exploration, Ltd., and Weatherford International Ltd. Finally, if oil continues to trade higher by a weakening dollar, natural gas becomes a more attractive alternative.”

In other news, IHS Cambridge Energy Research Associates predicted global oil production capacity will grow though 2030 with no evidence of a supply peak before then, based on the company’s analysis of more than 10,000 projects around the world.

IHS CERA expects global oil productive capacity to grow to as much as 115 million b/d through that period from 92 million b/d currently, a 25% increase. “Post-2030 supply could struggle to meet demand, but this would take the form of a decades-long ‘undulating plateau’ rather than a sharp fall,” it reported.

Energy prices
The December contracts for benchmark US light, sweet crude gained $2.55 to $78.90/bbl Nov. 16 on the New York Mercantile Exchange. The January contract climbed by $2.50 to $79.53/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.55 to $78.90/bbl. Heating oil for December delivery increased 6.59¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month advanced 7.06¢ to $1.99/gal.

The December contract for natural gas continued to climb, up 22.2¢ to $4.61/MMbtu on NYMEX. On the spot market, gas at Henry Hub, La., regained 37.5¢ to $2.90/MMbtu.

In London, the new front-month January IPE contract for North Sea Brent increased $2.45 to $78.76/bbl. Gas oil for November gained $17.50 to $628.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up $1.23 to $76.49/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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