MARKET WATCH: Egyptian conflict continues to roil energy markets

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 11 -- Crude oil prices remained essentially flat in the New York market Feb. 10, but West Texas Intermediate was reported up 0.4% with North Sea Brent gaining 0.8% in early trading Feb. 11 on false rumors and continued conflict associated with Egypt.

Meanwhile, natural gas was down 1.4% in Feb. 10 trading. Gas “continues to take it on the chin as not even a bullish withdrawal from storage could save prices from surrendering its $4[/MMbtu] handle,” said analysts in the Houston office of Raymond James & Associates Inc. “As for equities, the broader market ended the day flat as energy stocks outperformed on favorable earnings reports.”

The Energy Information Administration reported Feb. 10 the withdrawal of 209 bcf of natural gas from US underground storage in the week ended Feb. 4, exceeding the Wall Street consensus for a drop of 195 bcf. That left 2.1 tcf of working gas in storage. That is 98 bcf below the same period last year and 45 bcf below the 5-year average (OGJ Online, Feb. 10, 2011).

However, Adam Sieminski, chief energy economist for Deutsche Bank in Washington, DC, said, “The EIA storage report was likely muddied by freeze-offs, but the underlying balances point to an end-of-winter storage number near 1.45 tcf, much more bullish than the 1.57 tcf in our ‘normalized’ model.

Sieminski said, “Although the WTI price has decoupled from the Standard & Poor’s 500 Index, the relationship between Brent crude oil prices and the S&P 500 remains intact. We find that a 50-point move in the S&P 500 still translates into about a $5/bbl shift in Brent crude oil price, despite the WTI disconnect.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Trading the flat price of crude oil continues to be replaced by trading the Brent [price premium over] WTI.” On Feb. 10, Brent gave back some of its recent premium to WTI.

On the US Gulf Coast, Jakob noted, “Local crude oils were trading at new record high premiums, which when combined with the lower Brent premium to WTI should open the physical arbitrage to [the Gulf Coast] and guarantee that after the US Midwest, it is now the [area] that will see higher crude oil supplies on top of its record stocks of gasoline and distillates.” He also noted in the last 10 days there were “a number of weather delays” in the export of crudes from Mexico to the US Gulf Coast.

Egypt’s influence
In a defiant speech last night, Egyptian President Hosni Mubarak handed over powers to the newly appointed vice-president but vowed to remain in office if only as a figurehead until the end of his term in September. However, he finally stepped down Feb. 11, apparently forced out by Egypt's military. Meanwhile, unfounded rumors earlier circulated that Mubarak had already fled to Montenegro, leaving a final taped message of his capitulation.

Even more astounding was a false rumor that Saudi Arabia’s King Abdullah bin Abdul-Aziz had died of a heart attack following a heated telephone conversation with US President Barack Obama over the administration’s treatment of Mubarak. Saudi authorities reported the king is alive and well but confirmed an “unusually tense” telephone exchange between the king and Obama over what some in the Middle East see as the administration pushing Mubarak aside rather than allowing him a dignified exit.

On Jan. 28 and Feb. 4 (the two previous Fridays), the crude market moved on rumors linked to Egypt “and we expect that the same will be true today,” Jakob said. He said Mubarak in his speech “made strong points about not taking orders from ‘outside’ and it is starting to be obvious that there are strong behind-the-scene tensions between the US and Saudi Arabia on how to handle Egypt.” There was speculation Saudi Arabia may be ready to replace US financial aid to Egypt if it is withdrawn.

Jakob said, “For now there are still no disruptions to the Suez operations and yesterday 33 cargoes (all categories) were moving southbound and 19 cargoes northbound” through the canal. Suez authorities reported 344,000 b/d of crude oil moving north through the canal in January, up from 250,000 b/d in the same period in 2010. “Clean petroleum products northbound [were] at 727,000 b/d compared with 514,000 b/d in January 2010. Crude oil southbound was at 280,000 b/d compared with 400,000 b/d a year ago, and fuel oil at 280,000 b/d vs. 310,000 b/d a year ago. Naphtha southbound was at 194,000 b/d vs. 257,000 b/d last year,” said Jakob.

“Meanwhile, the US aircraft carrier Enterprise has decided to take a few days of holidays off the coast of Turkey while the US amphibious assault ships Kearsage and Ponce have anchored in the Red Sea,” he said. “They will be valuable resources for any evacuation of US citizens, but on the other hand to have the Enterprise transit through the Suez on its normal route during these troubled times would probably be problematic in terms of political image for the US administration.”

Aside from Egypt, Jakob said, “We also need to focus again on the euro since the yields on Portuguese jumped yesterday to a new recent high and the European Central Bank was forced to intervene again by buying Portuguese bonds. China is increasing reserve requirements for certain small and medium size banks.”

Energy prices
The March contract for benchmark US light, sweet crudes inched up 2¢ to $86.73/bbl Feb. 10 on the New York Mercantile Exchange. The April contract lost 16¢ to $89.94/bbl. On the US spot market, WTI at Cushing, Okla., was up 2¢ to $86.73/bbl.

Heating oil for March delivery fell 5.82¢ to $2.71/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dropped 5.62¢ to $2.47/gal.

The March contract for natural gas was down 5.8¢ to $3.99/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 1.7¢ to $4.11/MMbtu.

In London, the March IPE contract for North Sea Brent fell 95¢ to $100.87/bbl. Gas oil for February was unchanged at $853.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 66¢ to $97.59/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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