MARKET WATCH: Oil, gas prices continue falling in stressed markets

Energy prices continued to drop Mar. 29 with crude oil down 2.5% on bearish macroeconomic signals and end-of-quarter profit taking. “Likewise, natural gas prices took a 6% dive, setting a new low for the year after the weekly storage report,” said analysts in the Houston office of Raymond James & Associates Inc.

The Energy Information Administration reported the injection of 57 bcf of natural gas into US underground storage last same week, exceeding Wall Street’s consensus for 48 bcf increase. The latest addition brought working gas in storage to 2,437 bcf. Stocks are 816 bcf higher than last year at this time and 900 bcf above the 5-year average (OGJ Online, Mar. 29, 2012).

Raymond James analysts said, “In preparation for the potential for max storage in capacity, natural gas storage operators turned away customers halting interruptible transportation. Interruptible transportation is the first to go when storage gets close to full capacity, but typically this happens toward the end of injection season.” They said, “Coal-to-gas switching has done its part to increase demand; however, cash prices continue to slide.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market was sold off again yesterday, following the comment from the French prime minister that consumers can ‘reasonably expect’ a release from emergency stockpiles.” Implied volatility in the oil market rose amid uncertainties of possible intervention in the form of a release of emergency government reserves of crude and products. “Oil products outperformed crude again, propping up refining margins, which in turn kept the front-end of the Brent spread firm. Gasoline continues to be the leader across the petroleum complex, after a hefty drop in US gasoline inventories,” he said.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “With all the different statements that have been made over the last 2 days, we can consider as a given that a release of strategic stocks is on its way. There is no serious prompt supply disruption, but the reason for the stock release is price management, not supply management, and for that reason we think that there is a risk for the announcement of the stock release to be made before Apr. 12. The sponsors of the stock release are the US, the UK, and France, the same countries that have been sponsoring the sanctions and embargo against Iran, and we think that it is in their best interest to have oil prices trending lower when they start talks with Iran on Apr. 14. What seems not yet to be a given is the guarantee that Saudi Arabia will not cut exports when the stocks are released, but [US Sec. of State] Hillary Clinton is traveling today and tomorrow to Saudi Arabia to meet the king, and we have to guess that this issue will be addressed over this weekend. The bulk of the stock release is very likely to be done by the US while the UK, France, and maybe some other nations will probably take half-measures (such as allowing companies to hold a lower ratio of stock obligation).”

Meanwhile, the British prime minister’s warning that UK residents stock up fuel ahead of a possible strike next week by fuel delivery drivers prompted long lines and occasional scuffles among angry consumers at retail outlets reminiscent of US fuel rationing in the 1970s.

Jakob said, “Gasoline and diesel demand in the UK is currently running at record level as there is a run on the gasoline stations…. The UK government first advised people also to fill-up any jerry cans they have, but that recommendation was later dropped when the government realized there was a risk of having houses set ablaze by leaking jerry cans of gasoline. That being said, there is a 7-day notice for a strike, and that notice has not been given yet. In terms of broader demand, the current process of hoarding translates in very high prompt demand, but that will be replaced by lower future demand.”

If the demand surge continues “a few more days,” however, “it could add 0.1% to Britain's gross domestic product quarter,” Raymond James analysts said. “In the US, however, the latest GDP report was slightly more bearish than consensus expected. Also, European worries have been regaining investors' attention, with negative data points coming out of Spain and Portugal.”

Energy prices

The May contract for benchmark US light, sweet crudes dropped $2.63 to $102.78/bbl Mar. 29 on the New York Mercantile Exchange. The June contract fell $2.65 to $103.31/bbl On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.72 to $102.78/bbl.

Heating oil for April delivery declined 4.9¢ to $3.16/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.51¢ to $3.40/gal.

The new front-month May natural gas contract lost 13.3¢ to $2.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dipped 0.2¢ to $2.03/MMbtu.

In London, the May IPE contract for North Sea Brent lost $1.77 to $122.39/bbl. Gas oil for April fell $6.25 to $1,017.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased 68¢ to $121.57/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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