MARKET WATCH: Crude oil, natural gas prices take tumble

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 15 -- Oil and gas prices fell Mar. 12, with crude dropping to the lowest settlement since Mar. 4 but still above $81/bbl as the front-month contract ended its latest rally in the New York market.

On Mar. 15, analysts in the Houston office of Raymond James & Associates Inc. reported crude was below $81/bbl in early trading, continuing the retreat “on renewed concerns the recent rally may have outpaced demand fundamentals.” They said, “Separately, reports showing the Organization of Petroleum Exporting Countries increased drilling at the fastest rate in over 2½ years in January-February may place pressure on prices. The spike in the rig count comes alongside news that member nations, excluding Iraq, exceeded production quotas by approximately 1.9 million b/d during the month of February.” Finally, they said natural gas was down more than 1% in early trading after hitting fresh year-to-date lows Mar. 12 “to find itself right on its 200-day moving average.”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Crude sold off 1.1% on worse-than-expected consumer confidence numbers. Consumer sentiment index dropped to 72.5 from February’s figure of 73.6, while the market was expecting that the index [would] rise to 74. Crude oil dropped 0.3% last week, but is up 73% year-over-year.”

They said, “The market also overlooked the upward revision of 70,000 b/d in global fuel demand forecast by the International Energy Agency. Revised forecast now stands at 86.6 million b/d, a gain of 1.6 million b/d, or 1.8%, from 2009 levels. The IEA report was not all positive, as it revised Organization for Economic Cooperation and Development demand downward by 120,000 b/d on a weaker start of the year than previously forecasted (OGJ Online, Mar. 12, 2010).”

Pritchard Capital analysts said, “IEA projects that most of the global demand will come from emerging markets outside of OECD, revising its projections upward for those markets by 190,000 b/d, while China alone accounted for 130,000 b/d of this revision. IEA estimates that China will account for almost a third of global oil demand growth this year. While IEA forecasts an increase in oil demand, it also projects that supply will post a slightly larger gain in 2010. Supply surged in February due to higher OPEC and non-OPEC production generating an increase of 900,000 b/d, while OPEC’s 195,000 b/d increase was largely a result of higher Iraqi output.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The dollar index was stable for most of the week but started to fade [Mar. 12]. It is still within the narrow range set over the last 5 weeks, and one of the key focus this week will be on the [US Federal Reserve interest rates] decision and comments” on Mar. 16.

He said cash held by US banks increased slightly last week “close to the historic highs set in early February.” Jakob said, “US banks are hoarding $500 billion more cash than last year and $1 trillion more than in 2008 or 2007. Meanwhile, commercial and industrial loans continue to slowly slide lower week after week. The Fed might have used the money printing machine without parsimony, but for now a lot of the printed bills are still being hoarded rather than making their way back into the economy.”

Energy prices
The April contract for benchmark US light, sweet crudes rose as high as $83.16/bbl on Mar. 12 before closing at $81.24/bbl, down 87¢ for the day on the New York Mercantile Exchange. The May contract dropped 89¢ to $81.54/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 87¢ to $81.24/bbl. Heating oil for April delivery retreated 2.1¢ to $2.09/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.7¢ to $2.26/gal.

The April natural gas contract fell 4¢ to $4.40/MMbtu on NYMEX—“the lowest closing price since Nov. 19 as the market anticipates lower weather-driven demand in light of milder-than-normal temperature forecasts,” Pritchard Capital Partners said. “There are only 3 weeks left in end-of-withdrawal season with a decent possibility that we might see an injection by the third week of March.” Weather on an average this week is expected to continue to be warmer than normal, they said.

On the US spot market, gas at Henry Hub, La., dropped 12.5¢ to $4.36/MMbtu.

In London, the April IPE contract for North Sea Brent crude lost 89¢ to $79.39/bbl. Gas oil for April gained 50¢ to $665.75/tonne.

The average price for OPEC’s basket of 12 reference crudes slipped 2¢ to $77.74/bbl. So far this year, the basket of OPEC crudes has average $75/bbl, compared with an average $61.06/bbl for all of 2009.

Contact Sam Fletcher at samf@ogjonline.com.

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