MARKET WATCH: Low interest rates buoy oil prices

Crude oil prices continued rising with the front-month contract up 1% in the New York market after Federal Reserve Chairman Ben Bernanke indicated US interest rates will remain low to support a still-weak labor market.

Standard & Poor’s 500 Index climbed 1.4%, erasing all of last week's losses, and the euro strengthened against the dollar. Continued concern over Iran’s oil exports contributed to higher oil prices.

However, analysts in the Houston office of Raymond James & Associates Inc. reported, “Natural gas futures fell 2% as high supplies and warm weather continue to weigh on prices.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Flat [crude] price remains very difficult to trade. On the support side we have the war on Iran and the interventions of the US Federal Reserve; on the resistance we have demand destruction. Trading volume in crude oil futures has been trending lower in recent days, and yesterday it totally collapsed. Volume was very low in Brent, and in West Texas Intermediate it fell to the lowest level of the year. Given the very low volume currently trading crude oil futures, the very long exposure of large speculators, and the usual need to mark-up the books for the end of the quarter, we have to consider the risk of an end-of-the-quarter push higher if the American Petroleum Institute and Department of Energy [weekly inventory reports] do not come with a sentiment killer.”

Meanwhile, in the UK, a union of fuel delivery drivers voted Mar. 26 to strike in a dispute with delivery companies over safety conditions and pay. “The drivers deliver refined products to fuel stations that are branded (though not necessarily owned) by BP PLC, ExxonMobil Corp., Royal Dutch Shell PLC, and two supermarket chains. In aggregate, roughly 90% of Britain's fuel stations could be affected,” said Raymond James analysts.

Because the drivers gave 7 days’ notice, the strike won’t start until next week. “Until then we should expect a pick-up in demand as every car tank and jerry can should be filled up before strike,” said Jakob. “The UK supply system is already under some pressure due to the question mark over Coryton, and a strike will surely not help. Not the best for its image if petrol stations in the UK run out of fuel in front of the Olympics.”

The 220,000-b/d Coryton refinery near London is owned by the bankrupt Petroplus Holdings AG who is talking to potential buyers.

In other news, Jakob said, “The Forties crude oil stream should be affected by the problems that Total SA currently has with the gas leak on its Elgin platform. Elgin is producing about 30,000 b/d and Franklin is also at 30,000 b/d. Hence if output from Franklin is also affected, it will result in a loss of about 60,000 b/d to the Forties stream. Shell is said to be evacuating its Shearwater platform, but that one with an output of 2,000 b/d is fully negligible.”

He said, “Reports of more intense fighting in Sudan and of bombings of oil fields will push further away the expectations of seeing oil flowing back from that country.”

Energy prices

The May contract for benchmark US sweet, light crudes increased 16¢ to $107.03/bbl Mar. 26 on the New York Mercantile Exchange. The June contract rose 20¢ to $107.55/bbl. On the US spot market, WTI at Cushing, Okla., was up 16¢ to $107.03/bbl.

Heating oil for April delivery increased 1.87¢ to $3.23/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 3.14¢ to $3.42/gal.

The April natural gas contract dropped 4.9¢ to $2.23/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 8.7¢ to $2.17/MMbtu.

In London, the May IPE contract for North Sea Brent advanced 52¢ to $125.65/bbl. Gas oil for April was up $1 to $1,030/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 72¢ to $123.49/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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