MARKET WATCH: Ceasefire incident raises crude prices

Crude futures prices “jumped rather dramatically” late in an otherwise lackluster session Nov. 23 in New York on reports of a shooting on the Gaza-Israel border that traders feared might endanger last week’s ceasefire agreement. A weaker dollar also lifted most commodities, analysts said.

A Palestinian man was shot dead and 19 people were injured in a confrontation between civilians and Israeli soldiers in what was described as no-man’s land near the border. Other clashes were reported over the weekend, yet the ceasefire seemed generally to be holding.

“The ceasefire between Hamas and Israel remains fragile, although an encouraging sign is that Israel has allowed Palestinian boats much greater leeway to fish than has been allowed over the past 3 years,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Negotiations between Israeli and Egyptian officials concerning the ceasefire resumed Nov. 26 in Cairo. Egyptian protestors and police have clashed in that city after President Mohammed Morsi granted himself sweeping new powers on Nov. 22. However, Egypt's justice minister said resolution of the internal crisis is imminent.

Despite street violence, the Egyptian crisis is expected to have no effect on oil and gas production in that country. “Even the anti-Mubarak revolution itself in early 2011 did not result in any significant production disruptions, contrary to market fears at the time,” said analysts in the Houston office of Raymond James & Associates Inc. “The Morsi government has substantially maintained Egypt's energy policy, including support for foreign investment, with new oil and gas project concessions having been signed earlier this month.”

Raymond James analysts noted, “Congress is also back in session and with the market falling precipitously when negotiations seemed to be leading to edge of the cliff, we expect pressure to mount ahead of the Jan. 1 deadline. In an abbreviated week with low volumes as expected, the Standard & Poor’s 500 Index gained 4% on hopes that policymakers in the US and Europe alike are closer to solving their respective economic issues. Similarly, energy stocks also gained on stronger crude and gas prices, with the SIG Oil Exploration & Production Index and the Oil Service Index both gaining 4% for the week.”

They said, “Expectations are decidedly low” as the United Nations’ annual climate change conference opened Nov. 26 in Qatar. “Ever since the much-hyped Copenhagen summit went nowhere in 2009, the plan has been to defer the difficult decisions on a new overarching global treaty until 2015. This year, yet again, expectations for a negotiating breakthrough are very low,” Raymond James analysts reported. “The central tension remains between the industrialized world and the major emerging markets. The West insists that the next treaty—unlike the Kyoto Protocol, which expires at yearend—encompass the countries that account for all the growth in global carbon emissions, notably China and India. Those countries reject any binding carbon caps for the foreseeable future, hence the stalemate.”

Meanwhile, Euro-zone finance ministers also are meeting in an effort to provide Greece with a necessary bailout installment—“keeping attention on the region’s ailing economy and poor prospects for oil demand growth,” said Ground.

Energy prices

The January contract for benchmark US light, sweet crudes regained 90¢ to $88.28/bbl Nov. 23 on the New York Mercantile Exchange. The February contract took back 92¢ to $88.90/bbl.

Heating oil for December delivery inched up 0.49¢ to $3.08/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.56¢ to $2.74/gal. The December natural gas contract slipped 0.2¢ to $3.90/MMbtu on NYMEX. Updates of US spot market prices for oil and gas were not available.

In London, the January IPE contract for North Sea Brent gained 83¢ to $111.38/bbl. Gas oil for December rose $4.25 to $951.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 14¢ to $108.08/bbl. So far this year, OPEC’s basket price has averaged $109.73/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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