MARKET WATCH: Oil prices inched higher prior to decline of budget proposal

Oil prices continued upward Dec. 20 in the New York market amid encouraging economic indicators but dropped in early trading Dec. 21 after US House Speaker John Boehner overnight withdrew his “Plan B” budget proposal when he could not secure enough support in the Republican-dominated House of Representatives.

He called on President Barack Obama’s administration and the Democrat-dominated Senate to come up with a plan that will pass both houses within the remaining 10 days before mandatory tax hikes and spending cuts are implemented.

Referring to superstitious fears of cataclysm due to expiration of the ancient Mayan calendar, analysts in the Houston office of Raymond James & Associates Inc. said, “While it's probably not the end of the world, today would not be a fun day in the markets.”

The US Energy Information Administration reported the withdrawal of 82 bcf of natural gas from US underground storage in the week ended Dec. 14, surpassing Wall Street’s expectation of a 76 bcf draw. That left working gas in storage at 3.724 tcf, which is 66 bcf more than the comparable period in 2011 and 345 bcf above the 5-year average (OGJ Online, Dec. 20, 2012).

 “Overall, the storage withdrawal implies that the gas market is 3 bcfd tighter vs. last year on a weather-adjusted basis,” Raymond James analysts said.

However, they said, “The past run-up in gas prices over the $3.50/Mcf level has clearly led to a reversal of some coal-to-gas switching, and combined with warmer weather, the tightness in the gas markets has eased somewhat. With forecasts suggesting another week of warmer weather, prices have started to trend lower as the year-over-year surplus has continued to increase. Prices need to remain low enough to incentivize further gas consumption; however, with ethane prices in rejection territory across all basins, more gas is being added to the system (300-500 MMcfd). You can blame the Mayans or [former Vice-Pres. and global warming advocate] Al Gore, but there is no denying the fact that we need old man winter to resurrect gas prices above the $4 level.” 

Energy prices

The new front-month February contract for benchmark US light, sweet crudes increased 15¢ to $90.13/bbl Dec. 20 on the New York Mercantile Exchange. The March contract rose 23¢ to $90.69/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 62¢ to match the new front-month futures contract’s closing price of $90.13/bbl.  

Heating oil for January delivery of heating oil gained 2.19¢ to $3.06/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 1.12¢ to $2.75/gal.

The January natural gas contract rebound 14.2¢ to $3.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., took back 8.5¢ to $3.43/MMbtu.

In London, the February IPE contract for North Sea Brent dropped 16¢ to $110.20/bbl. Gas oil for January increased $4.25 to $941.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 10¢ to $107.20/bbl. OPEC offices in Vienna will be closed Dec. 24-26.

Contact Sam Fletcher at samf@ogjonline.com.

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