MARKET WATCH: Crude, natural gas prices rise before Easter holiday

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 25 -- Energy prices continued rising Apr. 21 with the front-month crude contract up 1.4% and the broader equity market up 0.5% on another round of impressive corporate earnings prior to Good Friday when the New York market closed for the long Easter weekend.

Supply-cuts by Saudi Arabia, increased demand for crude, and the declining US dollar helped prices gain $2.63/bbl, or 2.4%, during last week, said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The bullish sentiment probably exaggerated the move a bit on [Apr. 21] as the volumes were thin due to the holiday week, and prices are likely to once again come under pressure on fears of demand-destruction due to the prevailing high price levels,” Sharma reported.

Raymond James & Associates Inc. analysts in Houston said that recent crude prices “tested highs achieved earlier this month as unrest intensified in Syria, Yemen, and post-election Nigeria. Meanwhile, Saudi Arabia announced it has no intention to expand its production capacity above 12.5 million b/d, deflating rumors that it was considering boosting capacity to 15 million b/d.”

Both crude and natural gas prices were higher in early trading Apr. 25. The front-month natural gas contract increased 2.4% in New York on a lower-than-expected storage injection (OGJ Online, Apr. 21, 2011).

Sharma said, “The recent price support has mainly been a demand story as below-normal nuclear generation (even for the seasonal maintenance period), early cooling demand in the South, and strong cash-markets due to the overall higher industrial demand drove prices 20.8¢[/MMbtu], or 5%, higher week-over-week.”

Meanwhile, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The problem of the Standard & Poor’s 500 Index has not changed. The financials, which represent 16% of the index, are still deeply in the red (down 55%) compared to 2007, hence for the index to climb back to the 2007 levels requires a very strong performance from the other sectors, and in particular from energy, which represents 13% of the index. Compared to 2007, the energy sector is up 36% and is the best performing sector.”

The US Federal Reserve System, Jakob noted, “claims that the rising S&P is proof of the success of its ‘quantitative easing’ (QE) policies, but the rise of the S&P has a lot to do with the higher valuation of the energy sector, something which is dependent on higher oil prices.” He said, “That is the whole paradox: the ‘wealth creation’ claimed by the US Fed through the higher S&P has only been possible through higher oil prices, which is by itself an additional ‘tax’ on the US consumer and offsets much of the wealth effect of the higher stock index. It also means that the S&P 500 Index will suffer from any correction of the oil prices. This dependency of the S&P 500 on oil prices is a systemic risk, which will need to be taken into account in any commodity volatility linked to any QE statements from the Fed” in an unprecedented press conference scheduled after its board meeting Apr. 27.

“While the US Fed continues to force liquidity into the hands of primary dealers, the US commercial banks continue to shove cash into the vaults rather than into the economy,” Jakob reiterated. “The amount of cash held by US commercial banks has risen to a new all-time record high and is $533 billion higher than at the start of the year and $342 billion higher than last year in the same week, or $580 billion higher than in the same 2009 week.”

Since the start of its primary open market operations in March 2009 to stimulate the US economy, the federal reserve has injected a total $909 billion liquidity through the primary dealers, he said.

Energy prices
The June and July contracts for benchmark US light, sweet crudes each gained 84¢ Apr. 21, to $112.29/bbl and $112.75/bbl, respectively, on the New York Mercantile Exchange.
US spot market prices for crude and natural gas were not available.

Heating oil for May delivery dropped 2.22¢ to $3.20/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 3.13¢ to $3.31/gal. The May natural gas contract bumped up 10.3¢ to $4.41/MMbtu on NYMEX.

In London, the June IPE contract for North Sea Brent crude rose 14¢ to $123.99/bbl. Gas oil for May lost $6.50 to $1,014/tonne.

Updated information on the price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was unavailable.

Contact Sam Fletcher at samf@ogjonline.com

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