MARKET WATCH: Natural gas price falls; crude fails to break $100/bbl barrier

The front-month natural gas contract dropped a hair-raising 7.7% Jan. 31 in the New York futures market while crude made another unsustainable lunge above the $100/bbl barrier before resuming its slow-sinking trend.

Analysts in the Houston office of Raymond James & Associates Inc. attributed the gas plunge to sustained moderate winter temperatures in the US that “more than offset” anticipation of additional production cuts.

“Oil prices ended little changed despite somewhat higher-than-normal intraday volatility,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. The March crude contract climbed to $101.29/bbl before closing below $99/bbl for a moderate loss.

“The day started with one of those odd 1-min trades where Brent broke the 200-day moving average ($111.90/bbl)…followed by a few seconds of very fast surge to $113.90/bbl,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “That was enough to provide some hope to technical traders that there were more stop orders to be chased, and West Texas Intermediate then managed to finally break the resistance of $100/bbl. But then all that was ruined by the Consumer Confidence Index [a monthly report from the highly regarded non-profit Conference Board] showing a decline in January compared to expectations of a relative strong increase.”

The Consumer Confidence Index for January dropped to 61.1 after an increase to 64.8 in December. Its Present Situation Index declined to 38.4 from 46.5, while its Expectations Index dipped to 76.2 in January from 77 in December.

“It also did not help that the Institute for Supply Management (ISM) Manufacturing index for December was revised lower from 53.9 to 53.1,” said Jakob. “The Chicago Purchasing Manager Index (PMI) was also below expectations. This morning, the official Chinese PMI showed an increase from 50.3 in December to 50.5 in January, but the unofficial HSBC Group’s PMI survey for China and Taiwan fell by 3 and 4 points, respectively, month-over-month.” He said, “South Korea is showing a 6.6% annual drop in exports for January due to a sharp drop to Europe.”

Meanwhile, the latest MasterCard Spending Pulse report on US retail gasoline sales “continues to portray a disastrous driving demand in the US, with gasoline sales down 5.5% vs. the same 2011 week, while the 4-week average is down 4.6% vs. last year. At least there is some consistency between Consumer Confidence not being as high as expected and the low gasoline sales,” Jakob reported. “Consumer confidence is probably not better in Spain, since the latest data for December shows gasoline demand down 6.7% vs. a year ago and diesel down 5.4%, while consumption of natural gas is down 10.5% vs. last year.”

He added, “In the Euro-zone, unemployment in December was at 10.4% compared with 10% a year ago. In the under-25 category, the unemployment level in the Euro-zone is at 21.3%, reaching 48.7% in Spain and 47.2% in Greece. Unemployment in Europe is on a rising trend.”

In other news, he said, “The next 5 days will be extremely cold in Europe and very warm in the US. The US United Steelworkers have reached an agreement with the refining industry, and therefore we can write off the risk of strikes. European refineries do not always cope well with extreme low temperatures, and that will be a risk for malfunctions, although the extreme-cold wave is not expected to last very long. Natural gas is under renewed extreme price pressure due to the warm weather.”

US inventories

The Energy Information Administration reported Feb. 1 commercial US crude inventories jumped 4.2 million bbl to 338.9 million bbl in the week ended Jan. 25. That was on top of a 3.6 million bbl gain the previous week and exceeded Wall Street’s latest consensus for 2.6 million bbl build. Gasoline stocks rose 3 million bbl to 230.1 million bbl last week, shattering analysts’ expectations of a 500,000 bbl increase. Both finished gasoline and blending components increased. Distillate fuel inventories dipped 100,000 bbl to 145.4 million bbl, less than the 1.4 million bbl decrease the market expected. Total commercial petroleum inventories increased 8.4 million bbl last week vs. Wall Street projections of a 1.7 million bbl gain.

Imports of crude into the US increased 27,000 b/d to 8.9 million b/d last week. In the 4 weeks through Jan. 25, oil imports averaged 9 million b/d, down 97,000 b/d from the comparable period in 2011. Gasoline imports averaged 1 million b/d last week, while distillate fuel imports averaged 192,000 b/d.

The input of crude into US refineries declined 89,000 b/d to 14.2 million b/d last week, with units operating at 81.8% of capacity. Gasoline production decreased slightly to 8.5 million b/d while distillate fuel production increased to 4.5 million b/d.

Energy prices

The March contract for benchmark US light, sweet crudes climbed as high a $101.29/bbl Jan. 31 before closing at $98.48/bbl, down 30¢ for the day on the New York Mercantile Exchange. The April contract dipped 27¢ to $98.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month crude futures contract down 30¢ to $98.48/bbl.

Heating oil for February delivery increased 1.1¢ to $3.06/gal in the last trading day for that contract on NYMEX. Reformulated stock for oxygenate blending for the same month rose 1.67¢ to $2.89/gal.

The March natural gas contract dropped 21¢ to $2.50/MMbtu on NYMEX. The loss in the US spot market was even worse with gas at Henry Hub, La., down 25.6¢ to $2.59/MMbtu.

In London, the March IPE contract for North Sea Brent advanced 23¢ to $110.98/bbl. Gas oil for February was down $3.50 to $949.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes inched up 10¢ to $111.21/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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