MARKET WATCH: Oil, gas prices rebound with Mideast conflict

Crude oil and natural gas prices rebound Oct. 4, wiping out most of—and often more than—the losses in the previous session as Turkey considered a stronger military response against Syria following a fatal attack on civilians in the Turkish town of Akcakale near the Syrian border.

“This has raised concern that the Kirkuk-Ceyhan pipeline (which transports oil from Iraq) will be affected as it runs through southern Turkey near the Syrian border. From a more general geopolitical risk perspective, this development has also heightened concerns that more countries in the region get drawn into Syria’s civil war,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Turkish military forces shelled Syrian targets Oct. 3-4 in response to a mortar shell fired across the border that killed civilians in Turkey. “The spillover of Syria's violence into Turkey is not new, but Turkey's swift retaliation indicates that its rules of engagement have changed dramatically following similar provocations by Syria in the earlier days of the Syrian civil war,” said analysts in the Houston office of Raymond James & Associates Inc. (OGJ Online, Oct. 4, 2012).

In New York, the front-month contract for benchmark US crude shot up 4.1% “as positive economic data was compounded by increased Middle East supply risk premium amid the cross-border fighting,” Raymond James analysts reported. “Despite the bearish Energy Information Administration injection report, natural gas futures traded slightly higher (up 0.3%) for the eighth time in 9 days as forecasts again signal for cold weather.”

EIA reported the injection of 77 bcf of natural gas into US underground storage in the week ended Sept. 28, exceeding the Wall Street consensus for 73 bcf. That raised working gas in storage to 3.653 tcf, up 272 bcf from a year ago and 281 bcf above the 5-year average (OGJ Online, Oct. 4, 2012).

Market confidence in the euro was bolstered when European Central Bank Pres. Mario Draghi reiterated commitment to the common currency. “This in turn has lent support to commodities in general via a weaker dollar,” said Ground. However, crude prices were down and natural gas was flat in early trading Oct. 5.

Ground said, “Today the market is looking to US non-farm payrolls. Analysts are expecting a 115,000 increase in [in jobs during] September, compared [with] the 96,000 increase seen in August. We expect that a disappointing number could help lift commodity prices on the basis of what this implies for QE3 [the Federal Reserve’s third round of quantitative easing to stimulate the economy].Crude oil should benefit from such a rising tide, despite the demand implications of a weaker-than-expected US labor market.”

Energy prices

The November contract for benchmark US light, sweet crudes regained most of its loss from the previous session, rising $3.57 to $91.71/bbl Oct. 4 on the New York Mercantile Exchange. The December contract reclaimed $3.55 to $92.07/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $3.57 to $91.71/bbl.

Heating oil for November delivery jumped 12.2¢ to $3.19/gal on NYMEX, negating its cumulative loss of 9.28¢/gal since Oct. 1 when it became the front-month contract. Reformulated stock for oxygenate blending for the same month shot up 14.34¢ to $2.94/gal, offsetting its earlier total loss of 12.07¢/gal.

The November natural gas contract took back 1.1¢ to $3.41/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 2.3¢ to $3.23/MMbtu.

In London, the November IPE contract for North Sea Brent jumped $4.41 to $112.58/bbl. Gas oil for October escalated $20.25 to $979/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes continued to slip, however, down 9¢ to $106.99/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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