MARKET WATCH: Energy prices continue to climb

Energy prices continued to rise Oct. 11 with front-month crude up a modest 0.5% for the day after failing to maintain an intraday high above $86/bbl in the New York market. Natural gas continued to surge, jumping 2.3%.

In the European market, Olivier Jakob at Petromatrix in Zug, Switzerland, noted, “Brent futures [November contract] broke the resistance of $110/bbl and is in a price zone that will in our opinion trigger more demand destruction. We could be wrong, but then at current price levels we would like to see some leadership from the products (i.e. seeing the consumers leading the show). Instead, distillates were totally unchanged yesterday, making for a sharp fall in the distillates crack to Brent. The front backwardation in ICE gas oil is still very high, but it is a concern to see such a sharp fall in the distillates crack as we start the winter.”

The Standard & Poor’s 500 index finished flat yesterday, “snapping an incredible 55-day streak of intraday 100-point swings as investors watched from the sidelines to see if the Euro-zone's latest Hail Mary [desperation play] will succeed,” said analysts in the Houston office of Raymond James & Associates Inc.

Slovakia's parliament yesterday rejected the European Financial Stability Facility aimed at bailing out Greece and other faltering economies. That vote caused the Slovak government to fall. However, the country’s main political parties said Oct. 12 they now agree to approve changes to a bailout fund this week.

“The flat price of West Texas Intermediate maintained its correlation trade to the S&P’s 500 index; the movements were more in the Brent-WTI spread, which widened again,” Jakob said. With the near-month Brent contract approaching its Oct. 14 expiration, he said, “The front spread in Brent futures is converging further to the values of the previous expiry, but the physical premiums of Forties [production in the North Sea] continue to trend lower, and that is a significant change compared to the previous expiry.”

Jakob said, “Late in the day, ‘geopolitics’ came back with the news of an Iranian plot to assassinate the Saudi Ambassador in Washington, DC (OGJ Online, Oct. 11, 2011). A naturalized American citizen of Iranian origin [a former used car dealer from Corpus Christi, Tex.] was arrested after having gone a few times to Mexico to try and hire someone from a drug cartel to come to DC to kill the Saudi ambassador. But the Mexican drug cartel associate was really an informant of the US Drug Enforcement Administration, and luckily the whole plot was aborted.”

Daniel Yergin, chairman of IHS CERA, said, “It is still too early to determine the potential impact on global oil prices. But anything that threatens the security and stability of the Persian Gulf region, home to 60% of world oil reserves, will be of great concern to the oil markets and will reinforce anxieties and uncertainties that exist in the aftermath of the Arab Spring.” Moreover, Yergin said, “This plot ratchets up tensions in the already tense relationship between Saudi Arabia and Iran, the two largest producers in the Organization of Petroleum Exporting Countries.”

Jakob said, “We do not think that Saudi Arabia is going to launch a war on Iran over this latest development, but on the other hand in the whole ‘Arab Spring’ environment, it now has all the legitimacy it needs to maintain an iron fist on any street agitation in its eastern provinces or in Bahrain.”

Due to the Columbus Day holiday in the US on Oct. 10, the weekly report on US inventories by the Energy Information Administration will be delayed until Oct. 13.

Energy prices

The November contract for benchmark US light, sweet crudes increased 40¢ to $85.81/bbl Oct. 11 on the New York Mercantile Exchange. The December contract advanced 42¢ to $86.01/bbl. On the US spot market, WTI at Cushing, Okla., was up 40¢ to $85.81/bbl.

Heating oil for November delivery increased a miniscule 0.02¢, but its closing price was virtually unchanged at a rounded $2.90/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 5.23¢ to $2.75/gal.

The November contract for natural gas continued to rally, up 7.5¢ to $3.62/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 7.9¢ to $3.53.MMbtu.

In London, the November IPE contract for North Sea Brent rose $1.78 to $110.73/bbl. However, gas oil for October fell $6 to $912/tonne.

The average price for OPEC’s basket of 12 benchmark crudes gained 94¢ to $105.61/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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