MARKET WATCH: Warm weather reduces natural gas prices

Energy prices fluctuated within a narrow range with crude oil making minimal gains Mar. 5 in the New York market while natural gas fell 5% on forecasts of warmer than normal weather for March.

The broader market declined for a second consecutive session, down almost 1%, said analysts in the Houston office of Raymond James & Associates Inc. “Positive economic data from the US services sector failed to give the market any momentum,” they said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “The broad market for risky assets appeared to be subdued following a downward revision of the country’s growth target by the Chinese government. Although the US president increased the rhetoric over Iran ahead of the Israeli prime minister’s visit to Washington, most observers see military action against Iran ahead of the US presidential election as very unlikely. Oil products were also soft, with their time spreads at the front-end of the forward curves turning into contango. Technically, the oil market came under more pressure as most stochastic measures have turned negative.”

China announced it is targeting 7.5% growth in its 2012 gross domestic product, the lowest level since 2004. “While the oil market largely ignored the news for now, we do expect a slowing Chinese economy to have a negative impact on the oil market as well, although to a lesser extent than metals,” said Zhang. “It is important to note that China accounts for roughly half of the global demand growth for oil (400,000 b/d out of total 800,000 b/d growth, according to the latest International Energy Agency oil report, while demand from Organization for Economic Cooperation and Development countries continued to decline against a recovering economy. Distillates is likely to be hit more than gasoline as the government continues to tame the housing market and slows down infrastructure investment.”

In other news, a portion of Enbridge Inc.'s 318,000 b/d Lakehead System was shut in over the weekend following a two-vehicle collision that ruptured a small above-ground section of the oil pipeline in an industrial park in New Lenox, Ill. It is the largest crude oil pipeline to the US from Canada. The interruption of that crude supply “puts near-term downward pressure on Canadian and Bakken pricing as barrels are more or less stranded,” said Raymond James analysts. The pipeline is not expected to be back in service until Mar. 8.

Energy prices

The April contract for benchmark US sweet, light crudes inched up 2¢ to $106.72/bbl Mar. 5 on the New York Mercantile Exchange. The May contract increased 1¢ to $107.18/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 2¢ to $106.72/bbl in conjunction with the front-month futures contract.

Heating oil for April delivery gained 1.56¢ to $3.22/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, dipped 1.41¢ to $3.26/gal.

The April natural gas contract fell 12.9¢ to $2.36/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 7.2¢ to $2.31/MMbtu.

In London, the April IPE contract for North Sea Brent rose 15¢ to $123.80/bbl. Gas oil for March advanced $4.25 to $1,014.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped 74¢ to $122.34/bbl.

Contact Sam Fletcher at

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