MARKET WATCH: Natural gas, crude oil prices climb in mixed New York market

Natural gas prices escalated, crude futures continued to climb, but refined products fell in mixed markets Feb. 17 ahead of the President’s Day holiday in the US on Feb. 20.

International Petroleum Week in London this week in conjunction with the US market holiday today is likely to keep trading volumes thin.

West Texas Intermediate strengthened while Brent and most oil products weakened at the end of last week. “Refining margins were further squeezed on the back of continuous strength in crude prices but remain above the level seen during December last year,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Meanwhile, physical crude differentials are generally weaker, except some of the North Sea grades. The term structure of Brent appeared to be in a corrective mood after the recent rally at the front end of the curve.”

Front-month contracts for WTI and Brent netted $4.57/bbl and $2.27/bbl, respectively, last week—“helped by continuous concerns over geopolitical risks and bullish economic data from the US,” Zhang reported. “The euro reversed its recent slide during the middle of last week on hope that a deal would be agreed soon over Greek debt restructuring, which also gave some support to oil prices.”

He said, “Our view on Brent leans towards the bearish side. The physical oil market outside the US is evidently tight but not tighter than most of the months during the second half of last year. The latest softness in physical crude differentials and a pause in the Brent structure rally signal that the rally in flat price might have gotten ahead of the physical market; therefore a correction is due. Meanwhile, demand is likely to be seriously dented as oil prices in euros and sterling are around their all-time highs. With regard to investment money flow, open interest in the Brent futures market appeared to be reaching a plateau, which might suggest that buying power is waning. On balance, we see substantially more downside risk in Brent than upside in the next few weeks.”

Zhang said, “The recent market rally has been largely driven by a strong inflow of new money invested into the oil market. The latest commitment of traders report from the Commodity Futures Trading Commission shows WTI noncommercial net length increased [in the week ended Feb. 14] at the sharpest pace since the week ended Oct. 11 last year. Based on the same report, it is estimated that the week saw the highest inflow ($7.83 billion) of index investment into the commodity markets since the week ended Apr. 5 last year. Investors pushed $5.20 billion into the energy commodity markets.”

At KBC Energy Economics, a division of KBC Advanced Technologies PLC, analysts said oil prices hit a 6-month high last week, “supported by optimism over a Greek bail-out deal being struck by the European Union (although few seem to believe that the issue will disappear for good) and thus hopes for a quicker economic recovery in the bloc, as well as on news of production outages in the North Sea and a short shut-in of two of Enbridge’s Canadian-US pipelines.”

However, KBC analysts said, “Mainly the increase came from further tension surrounding Iran, with Brent prices jumping…to $119.99/bbl on news through Iran’s State TV of the Islamic Republic having decided to launch an immediate crude export embargo against six EU countries, including its main buyers there, Italy, Spain, Greece, and Portugal.”  That report later was denied by Iranian officials (OGJ Online, Feb. 16, 2012).

The focus on Iranian tensions in the oil market “to some extent looked almost orchestrated by Tehran during the week, as ambiguity over the possible imminent launch of an Iranian counter-embargo to the EU embargo starting July 1 remained, reminding crude buyers in the West of the potential cost associated with further tightened sanctions against it,” said KBC analysts. “Iran was confirmed Feb. 16 to have summoned ambassadors from France, Spain, Italy, Greece, Portugal, and Ireland to a meeting in which conditions for continued exports were laid out, including an insistence on renewed 3-5 year term contracts and on a waiver to exercising force majeure clauses in the standard contracts, according to Spain’s Foreign Minister, Jose Garcia Margallo,” they reported.

Energy prices

The March contract for benchmark US light, sweet crudes rose 93¢ to $103.24/bbl Feb. 17 on the New York Mercantile Exchange. The April contract gained 96¢ to $103.60/bbl. On the US spot market, WTI at Cushing, Okla., was up 93¢ to $103.24/bbl.

Heating oil for March delivery decreased 2.08¢ to $3.19/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 3.15¢ to $3.02/gal.

The March natural gas contract escalated 11.7¢ to $2.68/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 17¢ and also closed at $2.68/MMbtu.

In London, the April IPE contract for North Sea Brent lost 53¢ to $119.58/bbl. Gas oil for March was down $1.50 to $1,002.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 47¢ to $118.60/bbl. Less than 2 months into 2012, the OPEC basket price has averaged $107.46/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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