MARKET WATCH: Energy prices edged up in light trading

Energy prices generally were up slightly in light trading Apr. 20 with the front-month crude contract climbing again above $103/bbl in the New York futures market.

The front-month contract for West Texas Intermediate registered a net gain of 22¢/bbl last week primarily on news of an earlier-than-expected reversal of the Seaway Pipeline scheduled for May 17. “By contrast, front-month Brent lost $3.07/bbl for the same period because the supply situation improved for the crude oil market,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “The geopolitical tension over Iran was also on the backburner, having largely been replaced by the concerns over the Euro-zone debt crisis as the main driver in the market.”

Zhang said, “Middle distillates were firmer, while gasoline continued to lose ground as investors abandoned the long reformulated stock for oxygenate blending (RBOB)-heating oil spread. The ending of the spring refinery maintenance season has put pressure on product cracks in general. The counter-seasonal strength in middle distillates has been helped by the shutdown of a 300,000 b/d Indian refinery due to a water shortage. However, we believe that the strength in middle distillates will be short-lived because supply will be improved as refineries increase run-rates after maintenance during a generally weak demand season.”

Meanwhile, the stock market was down sharply in early trading Apr. 23 as major European indexes fell and the euro declined against the dollar.

“The Euro-zone April Purchasing Manager Index (PMI) released this morning struck a downbeat tone, with both manufacturing and services below market expectations and stuck in below-50 (contraction) territory,” Zhang reported. However, the Hongkong & Shanghai Banking Corp. Ltd. (HSBC) PMI survey for China “showed signs of improvement over the previous month, remaining soft at a level below 50,” he said. “The European stock market and the euro also responded negatively to the first round of the French presidential election over the weekend, which saw [President Nicolas] Sarkozy trailing behind the socialist candidate [Francois Hollande]. This sparks speculation concerning the future of the Euro-zone fiscal austerity as advocated by Germany and France.”

Analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC, noted the easing in oil prices “came to an abrupt halt midweek” on reports Hollande will withdraw support from the US-British plan to release strategic oil stocks if he wins the May 6 presidential election run-off. Analysts said, “High oil prices have been a major theme in both the US and France ahead of elections. Prices at the pump are already at all-time highs in euros and sterling….”

In Houston, analysts at Raymond James & Associates Inc. predict economic tightening for natural gas producers. They said, “Given the timing of the decrease in natural gas prices as well as a timely hedge book, E&P companies have mainly coasted through this quarter's borrowing base season. However, we do not expect the commercial banks to continue to use a lending gas price deck that is well above strip prices. On the whole, we are expecting our predominantly gas-weighted producers to realize 5-15% borrowing base declines in the fall borrowing base redetermination season as banks adjust to lower gas price decks and apply a layer of conservatism to their lending practices. Ultimately we believe this will result in a more active [acquisitions and disposals] market with operators that have access to capital becoming the financers of choice for more debt-ridden gas-weighted E&P companies.”

Energy prices

The May contract for benchmark US light, sweet crudes increased 78¢ to $103.05/bbl Apr. 20 on the New York Mercantile Exchange. The June contract gained $1.16 to $103.88/bbl. On the US spot market, WTI at Cushing, Okla., remained in step with the front-month futures contract, up 78¢ to $103.05/bbl.

Heating oil for May delivery advanced by 1.25¢ to $3.14/gal on NYMEX. However, RBOB for the same month decreased 1.14¢, also closing at $3.14/gal.

The May natural gas contract rose 2¢ to $1.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also was up 2¢, to $1.85/MMbtu.

In London, the June IPE contract for North Sea Brent increased 76¢ to $118.76/bbl. Gas oil for May climbed $6.25 to $1,002.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 21¢ to $116.46/bbl. So far this year, the OPEC basket price has averaged $117.75/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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