MARKET WATCH: Crude price rebounds; gas price falls 7%

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 1 -- The price of crude rebounded Nov. 30 on the New York market after failing to close below $75/bbl in light trading Nov. 27, but the front-month natural gas contract dropped 7% to below $5/MMbtu.

The crude price also was buoyed by “renewed dollar weakness—the US Dollar Index remained below the 75 level, political tension in the Middle East as Iran captured five British sailors sailing a racing yacht in the Persian Gulf, and better than expected US purchasing data,” said analysts at Pritchard Capital Partners LLC in New Orleans.

“Crude remains locked in the $75-80/bbl range,” they said. “Ji Xiaonan, the chairman of the supervisory board for Chinese state-owned companies, said Dubai-driven weakness [in the world economy] could be an opportunity to divest of foreign exchange reserves into gold or oil. [That] suggests any weakness will be bought by the Chinese, indicating that $75 could be a good floor for crude.”

Dubai World holding company, flag bearer for the Dubai emirate in global investments, said last week it would seek at least 6-month reprieve on repayment of $60 billion in debts.

“Dubai is definitely getting its fair share of attention,” said Olivier Jakob at Petromatrix, Zug, Switzerland. On Nov. 26 “as the world was getting scared of the collapse of Dubai World, a few sail yachts left the port for the Dubai-to-Muscat Race. One sailing yacht apparently did not make it to the start, and news came out yesterday that the [yacht named] ‘Kingdom of Bahrain’ and its crew was taken in custody by the Iranian coast guard,” Jakob said.

“Given the International Atomic Energy Agency row of last week [over Iran’s uranium enrichment program], any headline including Iran has become a bit more sensitive and with the early uncertainty about the boat involved (e.g. ‘a high speed boat’) it did not take long for oil prices to soar. The idea behind the sponsorship of the ‘Kingdom of Bahrain’ is to promote Bahrain as yachting destination, and we think we can now qualify this as a failed marketing campaign. Iran has become a bit more market sensitive, but we will hesitate to put too great a premium on this incident,” he said.

Jakob added, “This was not the only incident on water as Somali pirates took over the ‘Maran Centaurus’, a 300,000 tonne crude oil [very large crude carrier] sailing from the [Persian Gulf] to the Louisiana Offshore Oil Port [in the Gulf of Mexico] for an early January arrival. Unfortunately this is not a first timer, but by the same token it is difficult to see how this latest incident would have an impact on the supply and demand as the Somali pirates have now been operating for a long enough time to be a known market input.”

Crude closed up 1.6% Nov. 30 “partially as a result of the Iranian detention news but also gained from…positive industrial reports from the Institute for Supply Chain Management and Midwest Manufacturing Index,” said analysts in the Houston office of Raymond James & Associates Inc. “And in case you missed the nonevent, hurricane season has officially ended; 2009 saw the fewest named storms since 1997,” they added.

Pritchard Capital Partners reported, “Natural gas sold off ahead of the [Energy Information Administration’s Form EIA-914 monthly gas production report released Nov. 30] on reports of milder weather” for the next 2 weeks. “The EIA-914 report showed that US natural gas output rose 0.3% in September but fell 2.2% in the Lower 48. The increase in production in September was due to a 22% increase in Alaskan production. The number is probably somewhat of a disappointment to the market, but the EIA-914 data is for September and is 2 months old, so it is possible that the market will disregard the data as old information making the report less relevant; however, the market does need to see some evidence of a demand increase or a supply contraction if natural gas is to trade above $5/Mcf,” they said.

Continued weakness in gas prices “bodes well for coal switching (power generation), but a slow-to-recover US economy is likely to keep industrial and commercial demand below its 5-year average, thus leaving the US with a plethora of natural gas in storage (up 12% year over year and up 13% vs. the 5-year average),” said Pritchard Capital analysts.

Raymond James analysts said, “After adjusting [the EIA report numbers] for last year's hurricanes, the production figure during the month was down 1 bcfd year-over-year; and supply has now fallen 2.7 bcfd from the February 2009 peak. Of note, Louisiana was the only state that posted a sequential increase in production in September, owing in large part to continued activity levels in the Haynesville shale.”

They said, “The ‘in print’ production figures coming to the market over the next few months could very well show a meaningful drop in supply as producers were forced to shut-in. That said, we fully anticipate this trend to reverse as we head deeper into winter, with a backlog of uncompleted wells likely to come streaming back into the market. For 2010, we still believe that the market is underestimating the impact of high-grading and, thus, we believe that gas supply will take on a shallower decline than many of our peers.”

Energy prices
The January contract for benchmark US light, sweet crude gained $1.23 to $77.28/bbl Nov. 30 on the New York Mercantile Exchange. The February contract increased $1.30 to $78.66/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.23 to $77.28/bbl. Heating oil for December delivery climbed 5.59¢ to $2.02/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month escalated by 7.46¢ to $2/gal.

The January contract for natural gas dropped 34.4¢ to $4.85/MMbtu on NYMEX. On the spot market, however, gas at Henry Hub, La., jumped 83.5¢ to $4.40/MMbtu.

In London, the January IPE contract for North Sea Brent was up $1.29 to $78.47/bbl. Gas oil for December gained $9.25 to $614.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 83¢ to $76.21/bbl Nov. 30. So far this year, OPEC’s basket price has averaged $59.85/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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