MARKET WATCH: Improved market outlook pushes oil, gas higher

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 31 -- Energy prices continued to push higher Mar. 30 in the New York market, with the new front-month natural gas contract up slightly but still pennies below $4/MMbtu.

“Gas prices closed up more than 1% as improving US housing and consumer confidence data fueled a strong finish for commodities,” said analysts in the Houston office of Raymond James & Associates Inc. “Oil prices also finished in the green as energy stocks closed the day flat alongside the broader market. This morning, both oil and gas prices have continued to rally (up 1% and 2%, respectively), after word that [US President Barack Obama] will announce a proposal to allow oil and gas drilling along the Atlantic coastline, eastern Gulf of Mexico, and north coast of Alaska. This decision will not likely sit well with environmentalists as the Senate nears its chance to vote on the climate bill in the upcoming weeks.”

Meanwhile, Olivier Jakob at Petromatrix, Zug, Switzerland, noted, “The World Powers are moving closer to additional sanctions against Iran. It is also no secret that there has been some high level discussions between the US administration and the Saudis to explore how the kingdom could help in the efforts against Iran. In that regard we should also not forget that Saudi Arabia is a proud member of the G20 [the Group of 20 finance ministers and central bank governors established in 1999 to discuss key issues in the global economy].”

Jakob said, “If oil prices were to rise to $97.50/bbl or above with Saudi Arabia standing still, then it would be Iran that would be controlling the West and not vice-versa as any spike above $100/bbl would probably put an end to the nascent world economy recovery. If oil prices were to stay in a range that is acceptable for producers and consumers ($70-80/bbl) then it would be easier for the World Powers to impose sanctions against Iran. If Saudi Arabia was to help maintain a reasonable price range for oil prices, then it will become an even more respected G20 member without having worked against the interest of other members of the Organization of Petroleum Exporting Countries.”

He said, “OPEC wants to act against price volatility, and for now they have succeeded as current historical volatility has rarely been as low as now. We have to go back to the 1990s to find some lower volatility, and it was not much lower than the current levels. This low volatility is problematic for the commodity indices as long as a contango is maintained as it makes it close to impossible for commodity indices to print positive returns. West Texas Intermediate has been trading a relatively narrow range since the start of the year; the contango is relatively shallow, but it still makes commodity underperformers as an asset class.”

US inventories
The Energy Information Administration said Mar. 31 commercial US crude inventories increased by 2.9 million bbl to 354.2 million bbl in the week ended Mar. 26, surpassing the Wall Street consensus for a 2.5 million bbl gain. Gasoline stocks rose 300,000 bbl to 224.9 million bbl vs. expectations of a 1.9 million bbl draw. Distillate fuel inventories fell 1.1 million bbl to 144.6 million bbl, short of the consensus for a 1.4 million bbl decline.

The American Petroleum Institute earlier reported a draw of 421,000 bbl of crude to 351.9 million bbl; with gasoline stocks down 946,000 bbl to 223.2 million bbl and distillates declining 1 million bbl to 147.5 million bbl.

EIA reported imports of crude into the US declined 337,000 b/d to 9.1 million b/d last week. In the 4 weeks ended Mar. 26, US crude imports averaged 8.8 million b/d, down 374,000 b/d for the comparable period in 2009.

The input of crude into US refineries increased 192,000 b/d to 14.2 million b/d in the latest week, with units operating at 82.6%, EIA reported. Gasoline production increased slightly to 9 million b/d while distillates decreased to 3.6 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes gained 20¢ to $82.37/bbl Mar. 30 on the New York Mercantile Exchange. The June contract increased 18¢ to $82.77/bbl. On the US spot market, WTI at Cushing, Okla., was up 20¢ to $82.37/bbl. Heating oil for April delivery inched up 0.59¢ but closed essentially unchanged at $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.34¢ to $2.27/gal.

The new front-month May natural gas contract regained 5.7¢ to $3.97/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., lost 1.5¢ to $3.81/MMbtu.

In London, the May IPE contract for North Sea Brent crude was up 11¢ to $81.28/bbl. Gas oil for April dropped $5 to $674.50/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 44¢ to $78.21/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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