MARKET WATCH: Crude oil, gas prices rise in mixed market

The front-month crude oil contract price rose 0.9% Mar. 19 in the New York market amid concerns over pending disruption of Iranian exports. The natural gas futures price, meanwhile, increased 1.1%.

“The oil market was mixed with April West Texas Intermediate propped up ahead of its expiry today while Brent softened,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “There were mixed fortunes in the oil product market as gasoline outperformed the oil complex while middle-distillates lagged.” He said, “The strength in the US gasoline market has been apparent as the market is focusing on a much-reduced refining capacity along the east coast of the US.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “For now, the pump price of gasoline might be increasing, but the margins have claimed another victim and this time it is Valero Energy Corp. that announced it is once again shutting its [235,000 b/d] Aruba refinery (OGJ Online, Mar. 19, 2012).” However, he said, “The US Gulf Coast will gain in the second quarter some 325,000 b/d of new capacity at the Motiva Enterprises LLC refinery in Port Arthur, Tex., which will offset the loss of Aruba as both refineries should run on similar types of crude oil. The Valero Aruba refinery will probably be run as a storage facility (12 million bbl), but for that one needs to have some storage economics.” Meanwhile, he said, Hess Corp. announced it is trying to sell its storage capacity in St. Lucia.

In other news, China raised its domestic retail prices for gasoline and diesel more than 6%. “More importantly,” Zhang reported, “Saudi vowed to bring the price down to ‘fair levels.’”

That statement came from Saudi King Abdullah bin Abdul-Aziz Al Saud in a Mar. 19 cabinet meeting. “If the King says so, we have to take it with greater respect than if the oil minister says so,” Jakob said. “In that view, we need to note that Saudi Arabia is making a visible sign for everyone when it orders a record number of Saudi-owned Vela International Marine Ltd. [very large crude carriers] to sail to the US Gulf. At the current price and export volumes, Saudi Arabia will have met its annual budget already by the end of July, which also means that it can have oil prices return to $80/bbl and still end the year with a comfortable budget surplus.”

Moreover, he said, “The sanctions on Iran now offers some guarantees to Saudi Arabia that it does not have to fear a loss of volume, and at current volume even with a flat price drop to $55/bbl, Saudi Arabia would meet the budget (the Saudi budget was not done on the basis of 7.5 million b/d of exports and crude at $125/bbl). Iran of course would then be hit with low volume and low prices and would start to be under significant pressure, which could also then translate in less Iranian support to Syria, keeping in mind that the removal of the current regime in Syria is a key short-term political objective of the kingdom.”

The king’s statement and the Vela action could signal a change in Saudi policy, said Jakob. He pointed out, “The future for Saudi Arabia is in China more than in the US.”

Energy prices

The April contract for benchmark US sweet, light crudes climbed $1.03 to $108.09/bbl Mar. 19 on the New York Mercantile Exchange. The May contract gained 98¢ to $108.56/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.03 to $108.09/bbl.

Heating oil for April delivery declined 2.06¢ to $3.26/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 1.09¢ to $3.37/gal.

The April natural gas contract continued its rebound, up 2.5¢ to $2.35/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., regained 6.5¢ to $2.13/MMbtu.

In London, the May IPE contract for North Sea Brent dipped 10¢ to $125.71/bbl. Gas oil for April escalated by $7.75 to $1,043.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up $1.16 to $124.08/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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