MARKET WATCH: Crude tops $102/bbl in New York market

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 3 -- Fighting in Libya and general unrest in the Middle East and North Africa (MENA) spurred oil prices with crude topping $102/bbl in the New York market Mar. 2, but natural gas prices continued to falter, down 1.4% on forecasts of warmer weather despite an impending cold burst in the US Northeast.

“The ship for the weather support [for gas prices] has already sailed since the winter is almost 85% over,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.

Analysts in the Houston office of Raymond James & Associates Inc. reported, “West Texas Intermediate rose 2.6%, closing above $100 for the first time in over 2 years.” They credited the rally primarily to market fears the Libyan violence could spread through that region. But bullish reports of US oil inventories and an increase in private payrolls in February also helped boost energy prices. “The [payroll] news was enough to keep the broader market barely in the black, despite yet another day of rising crude prices,” Raymond James analysts said.

In Libya, they said, “An extended period of conflict—with commensurately lengthy disruption to oil supply—is looking even more likely than before. The one major wildcard is whether western powers will provide substantive military support to the rebels, though at this point that looks highly unlikely. Meanwhile, a senior cleric from Saudi Arabia's Shia minority has been arrested after calling for democratic reforms, raising some fears in the market about a potential Shia uprising against the Sunni monarchy (similar to the situation in Bahrain). Here, however, we would argue that fears are overstated. Shias comprise only 10-15% of the Saudi population (vs. the vast majority in Bahrain), and we see a mass uprising as a remote possibility in the near term.”

Term structures for WTI and Brent continued to strengthen. “The shift in WTI term structure no longer pays to store WTI at Cushing, according to our storage model,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

Zhang said, “If oil prices rise much further, this would pose downside risks to the global economy. Our concerns are based both on the current level of oil prices and the speed with which oil prices rise.” He added, “We view oil at around $130/bbl as a potential inflection point for the global economy. Currently, the global macroeconomy remains supportive of the oil market, in conjunction with strong fund money inflows into the oil market. However, we expect some demand destruction to be caused by the currently high oil prices.”

On the other hand, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “We have been hearing many claims that the price of oil will be a problem for the US consumer only when WTI reaches $120/bbl. The problem, however, is that this year WTI has moved to an unusual discount to the rest of the US crude oil markets and that the real price of crude oil in the US, on the basis of Light Louisiana Sweet in the US Gulf Coast, is already close to or above $120/bbl. The fact that WTI is at a deep discount to US Gulf Coast crude oil might not send the average American consumer in panic mode on a news headline basis, but the price of gasoline he buys to fill his car is based on $120/bbl crude oil, not $102/bbl. Based on current prices, we estimate that the average retail US gasoline prices should next week be close to $3.60/gal.”

US inventories
The Energy Information Administration reported Mar. 3 the withdrawal of 85 bcf of natural gas from US underground storage in the week ended Feb. 25, just short of the Wall Street consensus for an 86 bcf draw. That left 1.7 tcf of working gas in storage, 9 bcf less than the storage level a year ago and 15 bcf below the 5-year average.

EIA earlier reported commercial US crude inventories dropped 400,000 bbl to 346.4 million bbl in the same week. Gasoline stocks fell 3.6 million bbl to 234.7 million bbl, surpassing analysts’ expectations of a 400,000 bbl dip. Distillate fuel inventories were down 800,000 bbl to 159.2 million bbl, far short of the 1.5 million bbl decline anticipated by Wall Street (OGJ Online, Mar. 2, 2011).

“Cushing inventories are at all-time highs, further supporting the current $15 discount to Brent crude,” Raymond James said.

Energy prices
The April contract for benchmark US light, sweet crudes escalated $2.60 to $102.23/bbl Mar. 2 on the New York Mercantile Exchange. The May contract climbed $2.08 to $103.48/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.60 to $102.23/bbl.

Heating oil for April delivery advanced 3.42¢ to $3.06/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 4.61¢ to $3.03/gal.

The April natural gas contract, however, dropped 5.5¢ to $3.82/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 6¢ to $3.80/MMbtu.

In London, the April IPE contract for North Sea Brent climbed well above $117/bbl before closing at $116.35/bbl, up 93¢ for the day. Gas oil for March jumped by $24 to $964.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed $2.57 to $110.84/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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