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MARKET WATCH: Crude rebounds above $100/bbl on new hope for Greece

The price of crude oil rebound above $100/bbl Feb. 13 on the New York market on hopes that a newly approved austerity program in Greece might save that country’s economy and pave the way to a European recovery.

Despite violent riots in Athens in opposition to the bipartisan vote of the two largest political parties, analysts in the Houston office of Raymond James & Associates Inc. reported, “Crude oil ended the day up 2.7% on the news out of Greece, while natural gas futures continued their decline, finishing down 1.9% on the day.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “The oil market was firmer yesterday, with West Texas Intermediate  rallying over 50¢/bbl in the last half hour as a technical glitch forced the New York Mercantile Exchange to shut down electronic trading and rely on pit outcry trading for settlement.” He said, “Reformulated stock for oxygenate blending (RBOB) gasoline also pushed higher, while middle-distillates weakened. The Brent structure underperformed flat prices, while price differentials for physical crude cargoes remained firm on healthy buying interest from refineries.”

Oil prices also were lifted by gains on the equity market. “In addition, a car bomb in India targeting Israel diplomats highlighted the ongoing geopolitical risk in the Middle East. Nevertheless, we do not expect major supply disruptions from Iran, while we estimate that the US sanction probably has reduced Iran’s exports by around 250,000 b/d,” said Zhang.

He said, “For now, we believe that upside in oil prices is limited by their negative impact on global economic growth. While geopolitical risk in the major oil supply region remains high, the probability of a major supply disruption remains low. On balance, there is significantly more downside than upside risk to the Brent price in the short term. Product cracks and refining margins will continue to be eroded as high prices erode demand for oil products. Now is the ideal time for producer hedging, as the strong rally in the flat prices and low volatility present an opportunity for inexpensive downside protection.”

At Petromatrix in Zug, Switzerland, Olivier Jakob also reported a “bit of panic” when electronic trading shut down “with less than 30 minutes to go before settlement due to a ‘technical issue.’” He said, “We don’t know exactly what the ‘technical issue’ was, but it is clear that WTI was trading a high volume loop between $100.32-100.48/bbl before the shut-down. For some reasons some computers were going viral trading WTI before someone decided to literally pull the plug.”

He said, “We will not draw any conclusions, but we will just note that in the 4 minutes that preceded the shut-down of electronic trading in WTI, there was a surge of volume in the United States Oil Fund LP [one of the largest exchange traded funds], a surge of volume in WTI, and WTI prices were locked in an algorithmic loop.

The IntercontinentalExchange Inc. gas oil cracks and the front ICE gas oil backwardation “were weaker during the day due to the end of the European cold wave, and the loss in the gas oil crack was compensated by a gain in the gasoline crack,” said Jakob. “With the current price curve, gasoline prices at the pump in New York will be at $4/gal in the spring,” he predicted. “Water levels on the Rhine are expected to show an up-tick at the end of the week; hence we will assume that for now we have seen the worse in terms of disruptions to barge traffic in Europe.”

The euro weakened against the dollar overnight after Moody's Investors Service Inc. downgraded the credit ratings of Italy, Spain, and Portugal and placed a negative watch on the UK, France, and Austria. The weaker euro “will make it even worse for European consumers,” Jakob said.

Energy prices

The March contract for benchmark US sweet, light crudes climbed $2.24 to $100.91/bbl Feb. 13 on NYMEX. The April contract increased $2.26 to $101.29/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.24 to $100.91/bbl.

Heating oil for March delivery declined 2.21¢ to $3.16/gal on NYMEX. RBOB for the same month gained 3.76¢ to $3.01/gal.

The March natural gas contract dropped 4.6¢ to $2.43/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 9.8¢, also closing at $2.43/MMbtu.

In London, the March IPE contract for North Sea Brent increased 62¢ to $117.35/bbl.

The new front-month March contract for gas oil dipped 25¢ to $996.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 78¢ to $117.19/bbl.

Contact Sam Fletcher at samf@ogjonline.com

 


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