MARKET WATCH: Energy prices continue to climb

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 13 -- Following government reports of a larger-than-expected drop in US oil inventories and improved economic conditions, the front-month crude contract increased 0.8% to a 2-year high Jan. 12 in the New York market while North Sea Brent closed within pocket change of $100/bbl in London.

With snow reported in most of the Lower 48 states, the lead natural gas contract jumped 1.1%. However, in Houston, analysts at Raymond James & Associates Inc. reported, “Despite extreme heating demand, natural gas prices seem to remain anchored around $4.50[/MMbtu].” Meanwhile, energy stocks “rode the strengths in commodities and the broader market to another strong day,” they said.

In other news, James Zhang at Standard New York Securities Inc., the Standard Bank Group, noted, “The Trans-Alaska Pipeline has resumed operations, at a rate of 400,000 b/d, or about two thirds of its normal level. The pipeline is scheduled for another 36-hr closure at end of this week, in order to install a bypass to complete the repair for the leak. The front-month West Texas Intermediate-Brent spread weakened by 24¢/bbl on the news and following a small draw in Cushing, Okla., stocks.”

US inventories
On Jan. 13, the Energy Information Administration reported the withdrawal of 138 bcf of natural gas from US underground storage in the week ended Jan. 7, less than the Wall Street consensus for a decline of 146 bcf. The latest draw reduced working gas in storage to 2.959 tcf. That’s 69 bcf more gas in storage than in the same period a year ago and 161 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories fell 2.2 million bbl to 333.1 million bbl in the same week, exceeding the Wall Street consensus for a 1.4 million bbl decline. Gasoline stocks jumped by 5.1 million bbl to 223.2 million bbl, also above average. Analysts were expecting an increase of 2.1 million bbl. Distillate fuel stocks were up 2.7 million bbl to 164.8 million bbl, compared with market expectations of a 1 million bbl build. It too is above average, EIA officials said (OGJ Online, Jan. 12, 2011).

“We started 2011 with crude and distillate inventories setting new highs for this time of year, while gasoline stocks were just 0.1% lower than the record high level reached last year,” Zhang said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Stocks of distillates had a relative large build [including] a strong build in diesel, partly offset by a small draw in heating oil. Stocks of heating oil are 2.4 million bbl over last year (up 6%). Despite general strong exports of distillates to Latin America, the US stocks of distillates are still at multi-year highs for the season. Seasonal draws are to be expected over coming weeks.”

With current levels of distillate stocks and the restart of a high distillate-yields refinery in Aruba, Jakob said, “It is difficult to be worried about the US distillates supply for coming months. Europe temperatures have started the year above normal and ICE gas oil expired yesterday in a wide contango.”

He also noted, “A couple of people died in Chile in protest over increases in the price of natural gas; a few more people were killed in Tunisia; Jordan has urgently cut the tax levels on food and fuels over fears of protests…; South Korea surprised overnight by hiking interest rates to combat inflation and is looking at ways to disconnect internal fuel prices.”

Jakob said, “Emerging countries will run larger than expected budget deficits in 2011 as they are too afraid to pass-on all the food and oil price increase to their domestic markets. Since the start of the year the warning flags about food and oil inflation are growing

Energy prices
The February contract for benchmark US sweet, light crudes gained 75¢ to $91.86/bbl Jan. 12, the highest front-month settlement on the New York Mercantile Exchange since October 2008. The March contract increased 51¢ to $92.87/bbl. On the US spot market, WTI at Cushing was up 75¢ to $91.86/bbl. Heating oil for February delivery inched up 0.98¢ to $2.62/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month, however, dropped 1.53¢ to $2.46/gal.

The February natural gas contract jumped escalated by 5¢ to $4.53/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., shot up 14.6¢ to $4.55/MMbtu.

In London, the February IPE contract for Brent crude increased 51¢ to $98.12/bbl. The expiring gas oil January contract was unchanged at $794.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes advanced $1.31 to $94.23/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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