MARKET WATCH: Oil prices wobble; gas prices climb

Crude oil prices traded moderately lower Jan. 24 in the New York market despite concerns of possible retaliation by Iran against recent sanctions. Natural gas continued climbing from recent 10-year lows, however, with a sizeable escalation in the spot market price.

The oil market came under pressure because “short-term…fundamentals appeared to be soft and the negotiation over Greek debt continued to dampen market sentiment,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Oil products, however, benefited from the news of Petroplus Holdings AG’s insolvency and actually made gains on the day. Consequently, product cracks and refining margins were firmer, which should prompt refineries to raise throughput. Nevertheless, the front-end of Brent’s forward curve softened again, signaling a weak prompt physical market.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “With Petroplus going into terminal shutdown, the ICE gas oil spreads firmed a bit from their recent move into a prompt contango, and the cracks both on gasoline and distillates improved further. The winter is also starting to get colder in Europe, although in our opinion it is a bit late in the season. For the refineries that have not transformed themselves into storage depots, with the current margins the message should be very simple: you run as much as you can to materialize the rebounds in the cracks. At those healthy crack levels it is therefore interesting to see the Brent structure flattening further and about to enter into a prompt contango. If Brent enters a contango under the current refining margins then there is an obvious over-supply in the crude oil market given that crude is supposed to go at current economics into refineries rather than being pushed towards storage.”

Zhang said, “There has been good buying interest for crude from European refiners in recent weeks on much-improved refining margins. The price differential for Urals crude oil over Brent for both northwest European and the Mediterranean region continued to climb. West Africa (WAF) crude differentials were also fairly strong as Asian buyers found WAF crude attractive due to the narrow spread between Dubai and Brent. Both developments are positive for the oil market but have yet to translate into strength in the general oil market.”

Oil prices were up in early trading Jan. 25 in the London and New York markets in a knee-jerk reaction to Iranian rhetoric about stopping the sale of crude to Europe. Such a move is unlikely, however, until Iran secures alternative markets for that crude.

President Barack Obama’s State of the Union speech last night had no immediate effect on energy markets, although he talked more about energy programs than in previous years, advocating both increased domestic drilling and decreased tax incentives for the oil and gas industry.

“Natural gas was mentioned several times, though contrary to pre-speech rumors, there were no specific gas initiatives,” said analysts in the Houston office of Raymond James & Associates Inc. “Obama pledged to open up more acreage to drilling but gave no real specifics. (For example, is Florida drilling again on the table? We somehow doubt it.) The language regarding fracking was subdued: Obama endorsed a disclosure requirement for fracking chemicals but did not call for any other regulation. Finally, Obama offered a defense of the administration's support for clean energy, including the loan guarantee program, though without mentioning Solyndra LLC by name.”

Solyndra went bankrupt last year, leaving US taxpayers on the hook for $535 million worth of loan guarantees from the Obama administration.

US inventories

The Energy Information Administration said Jan. 25 commercial US crude inventories increased 3.6 million bbl to 334.8 million bbl in the week ended Jan. 20. Gasoline stocks declined 400,000 bbl to 227.1 million bbl in the same period. Finished gasoline supply decreased while blending components increased. Distillate fuel inventories dropped 2.5 million bbl to 145.5 million bbl.

Imports of crude into the US rose by 588,000 b/d to 8.9 million b/d last week. In the 4 weeks through Jan. 20, crude imports averaged 9 million b/d, up by 81,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 722,000 b/d while distillate fuel imports averaged 146,000 b/d.

Input of crude into US refineries was down 279,000 b/d to 14.3 million b/d with units operating at 82.2% of capacity. Gasoline production decreased to 8.5 million b/d, and distillate fuel imports declined to 4.4 million b/d.

Energy prices

The March contract for benchmark US light, sweet crudes dropped 63¢ to $98.95/bbl Jan. 24 on the New York Mercantile Exchange. The April contract decreased 57¢ to $99.29/bbl. On the US spot market, however, West Texas Intermediate at Cushing, Okla., was up 52¢ to $98.70/bbl as it struggled to get back in step with the front-month crude futures price.

Heating oil for February delivery increased 1.44¢ to $3.02/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.71¢ to $2.81/gal.

The February natural gas contract rose 2.9¢ to $2.55/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., shot up 27.5¢ to $2.60/MMbtu.

In London, the March IPE contract for North Sea Brent declined 55¢ to $110.03/bbl. Gas oil for February gained $4.75 to $941.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 29¢ to $111.49/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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