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MARKET WATCH: Gas price falls, crude prices climb after holiday

There was no floor trading on the New York Mercantile Exchange and no closing prices on either NYMEX or the oil and gas spot markets Feb. 20 due to the Presidents’ Day holiday in the US. However, sharp drops in natural gas prices were reported in electronic trading, and gas continued to fall in early trading Feb. 21.

In London, Brent rose 47¢ on Feb. 20 “to close above the psychologically important level of $120/bbl again after the dip” in the Feb. 17 session, said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Trading in ICE gas oil was also subdued. Both the term structure of Brent and price differentials in physical crude cargoes continued to weaken, signaling a softer market,” he said.

Oil prices increased on news that Euro-zone finance ministers finally approved the €130 billion bailout package so that Greece can pay debts Mar. 20. Oil prices also were supported by reports Feb. 19 that Iran’s oil ministry stopped sales of crude to British and French companies, preempting the European Union embargo of Iranian crude effective in July.

In Houston, analysts at Raymond James & Associates Inc. reported physical shipments to Britain and France last year totaled less than 100,000 b/d. However they said Total SA and the Royal Dutch Shell PLC each bought 100,000 b/d in part for sale outside their home markets.

“BP PLC has not bought any Iranian crude in recent years,” said Raymond James analysts. “What is most interesting in this context is the growing number of energy companies outside the US and the EU that have made a deliberate business decision to reduce (or avoid altogether) commercial transactions with Iran. This includes South Africa's Sasol, Japan-based Nippon Yusen, and Bermuda-based Frontline. However, all this may still have only a limited effect as long as China—the largest importer of Iranian crude—persists in its refusal to impose sanctions of its own.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Iran certainly made a lot of headlines about its halting of oil sales to British and French companies that were not buying anymore from Iran. Then the International Energy Agency came around to claim that it stands ready to release stocks in case of sudden interruption of flows from Iran. In reality, however, there is not much in our opinion that the IEA can do. If Iran has announced a stop to nonexistent flows, it has not done so to European countries [Italy, Greece, and others] that are still importing crude oil from it.”

Instead, Iran “has proposed to those countries some long-term supply contracts with terms that Iran knows very well those countries will not accept,” Jakob reported. “It is, however, an important detail because if those flows stop it will not be because Iran is doing an embargo but because the European oil companies are not agreeing to the commercial proposition of Iran. And it is not the role of the IEA to release stocks to companies that do not agree to commercial offers from a supplier.”

Jakob said, “The IEA is currently in a bit of a hotspot because if it is its role to release stocks in case of a supply disruption (i.e. a blockade of the Strait of Hormuz), it is not really its role to help organize an embargo on any country. Transforming the IEA from a defensive to an offensive body will not help price stability in the long term because then it will be even less than today [in] the interest of the Organization of Petroleum Countries to allow any stock-build.”

Jakob said, “Technically, it is hard to draw strong conclusions in a market that is in holidays and trades with no volume. Volume in Brent was down to 153,000 contracts yesterday, which was the lowest volume day of the year. Nonetheless, Brent printed a bearish ‘shooting star’ [price pattern] yesterday, and if it managed to close above $120/bbl for a few basis points, it still needs to show a more convincing break of that level.” He said, “The more efficient way currently to maintain the global rally in crude oil would be to bid West Texas Intermediate up and then Brent” through the Brent premium over WTI.

Contact Sam Fletcher at samf@ogjonline.com.


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