MARKET WATCH: Expiring January gas contract price increases

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 29 -- The expiring January natural gas contract went out on a 4.1% increase Dec. 28 as traders scrambled to cover short positions, while the front-month crude ticked up 0.5% in relatively light trading on the New York market as the US dollar weakened.

“Technically the markets continue to be dominated by a lack of volume, and that makes it hard to define any trends,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Volume on Brent [crude from the North Sea] is particularly light. West Texas Intermediate is kept within a small range, still within the vicinity of the higher Bollinger [price band] at $91.90/bbl. WTI is still supported on the 5-day moving average; hence the positive momentum is not over yet.”

A Bollinger band is a technical analysis tool developed in the 1980s to measure high and low prices of previous trades.

Analysts in the Houston office of Raymond James & Associates Inc. noted, “Despite the crowds at the malls, consumer confidence actually fell in December.” Yet, they said, “In spite of the unexpected decline in consumer confidence and a poor report for October home prices, the broader market continued its rally into yearend with the Dow Jones Industrial Average closing 0.2% higher in another light day of trading.” Energy stocks were mixed.

However, those two macrodata points “were not encouraging for the justification” of the second phase of the Federal Reserve Bank's quantitative easing program (QE2), Jakob said. “The stock market is strong, and there are a lot of calls for the Standard & Poor’s 500 index to reach next year close to a new all-time high, but such great enthusiasm when housing data have for months not shown any signs of improvement is worrying,” he said. “To make things worse the Treasury yields have started to rise again this week, and this will maintain mortgage rates at levels comparable to the first half of 2010.”

Meanwhile, the Energy Information Administration’s weekly report on US inventories of crude, gasoline, and distillate fuel is delayed until Dec. 30 due to the Christmas holiday last week. Prices for both crude and natural gas were down in early trading Dec. 29.

In other news, Raymond James analysts noted a New York Times report that low prices are encouraging companies to upgrade natural gas into products traditionally derived from oil. “South Africa's Sasol [Ltd.] has used the Fischer-Tropsch process for years to convert coal into diesel and is now considering using similar technology in Canada to turn gas into diesel. However, the drawbacks of Sasol's process include high carbon emissions and significant energy requirements,” they said. In contrast, privately-held Siluria Technologies Inc. is converting gas into ethylene using a process that produces energy instead of absorbing it, while also emitting less carbon, said Raymond James.

“Ethylene has a number of commercial applications as a substitute for oil in consumer products. Setting aside the science, the major difference between the processes used by Sasol and Siluria is that Sasol's technology has been proven at commercial scale while Siluria's has only been demonstrated in the lab,” the analysts said.

Raymond James analysts also noted an “interesting article” in Greentech Media with a top 10 list of wind industry developments in 2010. “Ranked No. 1 is the 50% year-over-year collapse in US wind installations, which is directly related to No. 9, the fact that domestic natural gas prices remain at ultra-depressed levels,” the analysts reported. “By comparison, the Chinese wind market is still going gangbusters (No. 4), albeit with plenty of competition among turbine producers.”

They added, “We are most amused by No. 2, titled ‘Offshore wind starts turning around,’ by which they mean ‘the US may finally have an operating installation by 2015’—not exactly what we would consider a game-changer.”

Energy prices
The February and March contracts for benchmark US light, sweet crudes both regained 49¢ to $91.49/bbl and $92.23/bbl, respectively, Dec. 28 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., was at $91.48/bbl, back in step with the front-month futures price. Heating oil for January delivery inched up 0.77¢ to $2.52/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month continued to decline, down 1.53¢ to $2.41/gal.

The expiring January natural gas contract jumped by 10.4¢ to $4.22/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rebounded 6.6¢ to $4.11/MMbtu.

In London, the February IPE contract for North Sea Brent crude increased 53¢ to $94.38/bbl. Gas oil for January was up $2.75 to $780.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped 59¢ to $90.08/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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