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MARKET WATCH: Natural gas rally ends; oil prices rise moderately

Crude oil prices continued recent small-change increases, with crude still challenging the $100/bbl barrier in the New York market. However, the front-month natural gas contract fell 4%, ending that rally, as traders responded to bearish projections of increased gas production while shrugging off a bullish draw of gas last week from US underground storage.

“Oil was flattish, despite the fact that Iran announced that it was considering an immediate halt to its oil exports to the European Union in response to the EU embargo set to go into place by July 1. Looks like the oil market is calling Iran's bluff,” said analysts in the Houston office of Raymond James & Associates Inc.

The Energy Information Administration reported the withdrawal of 192 bcf of natural gas from US underground storage in the week ended Jan. 20. That exceeded Wall Street’s consensus for a 175 bcf reduction, leaving just under 3.1 tcf of working gas in storage. Still, stocks are 531 bcf higher than last year at this time and 547 bcf above the 5-year average (OGJ Online, Jan. 26, 2012).

Meanwhile, EIA’s Jan. 26 early release overview for 2012 energy markets predicted growing US production of natural gas will exceed consumption early in the next decade, resulting in relatively low gas prices in the US compared with other markets.

In a more optimistic report, James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market continued to strengthen on strong refining margins and generally improved macroeconomic data.” Oil products outperformed crude for another day, resulting in firmer product cracks and refining margins.

“The spread between Brent and Dubai narrowed further on very strong fuel oil, particularly in the Asian market. In fact, prompt Singapore fuel cracks over Dubai have even turned positive. Driven by a strong physical market, both term structures and price differentials for physical cargoes were firmer,” Zhang said.

“While the market appears to be concerned with product supplies following recent refinery closures,” he said, “weekly oil product inventory data for both the ARA region (Amsterdam, Rotterdam, and Antwerp) and Singapore seem to tell a different story, with the exception of middle-distillates in Singapore. Total product inventories rose 258,000 tonnes week-over-week, with gas oil stocks up 307,000 tonnes. In Singapore, total product stocks increased 1.8 million bbl and fuel oil stocks grew 2.8 million bbl, while middle distillates fell 1 million bbl. Ample product stocks are likely to dampen the product cracks and refining margins.”

Meanwhile, Inchcape Shipping Services warned Jan. 27 that a 1-day nationwide strike in Belgium scheduled Jan. 30 will close all ports in that country, including Antwerp, “with knock-on effects likely during the whole week.” Patrick Van Huffelen, general manager of ISS Port Services, said, “We advise shipowners and operators not to attempt to deliver any cargoes to Belgian ports on Monday, and we are warning that further disruption to schedules may continue into the week.”

In other news, Zhang said, “Yesterday saw the US durable goods orders beating market expectations, and consumer confidence in core Euro-zone countries appeared to be stabilizing.” Corporate earnings reports for the fourth quarter “have generally bested market expectations,” Zhang said, adding, “The resumption of Greek debt negotiations today has given some positive signs but certainly carries significant downside risk.”

Zhang said, “In the very short term, we expect the market to climb high, supported by strong refining margins and hence good physical buying. However, we are cautious that the strength in products is unlikely to last as refineries ramp up throughput and warm weather continues to erode demand. Consequently, we have a slightly bearish bias the next few weeks. In addition, we are looking to sell into the strength of product cracks.”

Energy prices

The March contract for benchmark US light, sweet crudes climbed as high as $101.39/bbl in intraday trading Jan. 26 on the New York Mercantile Exchange before closing at $99.70/bbl, up 30¢ for the day. The April contract increased 31¢ to $100.04/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 30¢ to $99.70/bbl.

Heating oil for February delivery advanced 3.43¢ to $3.05/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 1.24¢ to $2.61/gal.

The February natural gas contract fell 12.4¢ to $2.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 4.5¢ to $2.67/MMbtu.

In London, the March IPE contract for North Sea Brent was up 98¢ to $110.79/bbl. Gas oil for February increased $2.50 to $944.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained 56¢ to $111.26/bbl.

Contact Sam Fletcher at

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