MARKET WATCH: Oil prices continue climbing

Oil prices continued to rally when trading resumed Jan 22 after the Martin Luther King Jr. holiday in the US. The market was “emboldened by the promise of monetary stimulus in Japan and its possible attendant positive effect on other major oil consumers in the region,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Ground reported, “Support for prices continues as participants grow optimistic that US politicians will pass a resolution to push the debt limit ceiling forward to May 19. The White House has also said that this resolution would be signed into law by [President Barack] Obama should it pass Congress. While this should lift markets in the short term, it would merely be a kicking of the can down the road. So whereas US fiscal uncertainty and risk would have been concentrated in the first quarter, some of this will move to second quarter.”

He noted fiscal uncertainty remains with the sequester spending cuts and budget appropriations expiry still ahead in March. “Therefore, there is still considerable potential for damage to investor and consumer confidence, and ultimately growth over the next 6 months,” Ground said.

Analysts in the Houston office of Raymond James & Associates Inc. reported, “Investors were focused on the pragmatic, with German investor confidence surging and Spanish and Italian government borrowing costs close to 12-month lows. Crude futures rose 0.7% while natural gas remained flat.”

Analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, said gasoline cracks in the Singapore market weakened sharply during the first 2 weeks of January, with the crack for 95 octane gasoline dropping from just above $16/bbl at the beginning of January to a low of $12/bbl on Jan. 14. “Gasoline cracks weakened on higher supplies due in part to unusual movements from the US, with more shipments scheduled to arrive in Asia from the world’s top gasoline consumer for the second straight month in January as the country struggled with excess stocks,” they said.

KBC analysts expect some support for gasoline cracks over the next couple of months due to forthcoming heavy refinery maintenance, particularly with planned turnarounds in South Korea. In addition, they said, “Taiwan’s Formosa plans to shut down a gasoline-making unit for maintenance starting in March for 3 months. However, several major refinery startups in Asia are anticipated for early 2013.” KBC expects gasoline cracks to ease to around $11.50/bbl by March.

Analysts with the PIRA Energy Group in New York expect declining US imports to adversely affect Atlantic Basin crude balances. “North American production is growing rapidly, and US offshore imports will continue to decline,” they said. They expect the price spread between West Texas Intermediate and North Sea Brent to narrow steadily in first quarter “and then more sharply midyear as Cushing, Okla., inventories are drained. US Gulf Coast light crude differentials will be choppy but will remain connected with limited discounts vs. international levels.”

They said, “Oil prices have continued to trade in a relatively tight range. Asian crude runs will decline in January, but demand declines for gasoline, gas oil, and fuel oil will outpace run declines. This suggests Asian product stocks will build.”

Energy prices

The February contract for benchmark US light, sweet crudes gained 75¢ to $96.24/bbl Jan. 22 on the New York Mercantile Exchange, its highest closing since October. The March contract rose 74¢ to $96.68/bbl. On the US spot market, WTI at Cushing was up 75¢ to $96.24/bbl.

Heating oil for February delivery increased 4.7¢ to $3.07/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 6.15¢ to $2.83/gal.

The February natural gas contract climbed 6.4¢ to $3.56/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 7.3¢ to $3.58/MMbtu.

In London, the March IPE contract for North Sea Brent was up 71¢ to $112.42/bbl. Gas oil for February gained $5.25 to $969.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 16¢ to $109.48/bbl. OPEC’s Vienna office will be closed Jan. 24.

Contact Sam Fletcher at samf@ogjonline.com.

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