MARKET WATCH: Oil prices inch up; gas price dips

Oil prices registered small gains Jan. 7 but enough to boost the front-month crude contract to its highest closing since September in the New York market. Natural gas was down 0.6%, however, as warm weather continued on the East Coast.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “While oil prices are still enjoying some support, it is clear that the market is losing momentum” prior to the latest weekly reports on US inventories. “After a particularly strong drawdown in the previous [reports], participants are expecting a build in crude oil inventories this time. Product stocks are expected to continue their expansion,” he said. The American Petroleum Institute is scheduled to release its inventory report late today while the Energy Information Administration is to report Jan. 9.

Ground said, “There is optimism that the resumption of service of the expanded Seaway pipeline (scheduled for this week) should keep West Texas Intermediate well-supported.” The capacity of that pipeline linking the Cushing, Okla., delivery point to the Gulf Coast has been expanded to 400,000 b/d from 150,000 b/d. Its opening should reduce Cushing’s glut of crude inventory, which was up to 49.8 million bbl in the week ended Dec. 28 from 29.1 million bbl at the start of 2012.

The anticipated opening of the expanded pipeline already has affected prices for WTI, resulting in narrowing the WTI-Brent spread to around $18/bbl from $22/bbl in mid-December. “While we do feel that this pipeline will be a welcome outlet for crude flowing into Cushing, production from the north of the continent continues to grow (Dakota shale and Canadian crude) and therefore will continue to put pressure on Cushing stockpiles,” Ground said.

In other news, US natural gas production increased 300 MMcfd in October—“the most recent data point given the lag in reporting,” said analysts in the Houston office of Raymond James & Associates Inc.—on top of a gain 700 MMcfd in September. Based on the EIA gas production report issued Jan. 7, Raymond James analysts said, “Onshore volumes were flat sequentially in October, as continued growth out of the Marcellus was offset by declines in Texas, Wyoming, and Louisiana during the month. That said, onshore volumes are up 2.2 bcfd year-over-year and have increased 1.3 bcfd since June. Looking ahead, we maintain a non-consensus view that core US gas supply will grow 1.2 bcfd in 2013, driven by associated gas supply growth from oil wells, a reversal of price-related shut-ins early 2012, no Hurricane Isaac production delays, and additional Marcellus takeaway capacity coming online late 2013.”

Energy prices

The February contract for benchmark US sweet, light crudes inched up 10¢ to $93.19/bbl Jan. 7 on the New York Mercantile Exchange. The March contract advanced 12¢ to $93.63/bbl. On the US spot market, WTI at Cushing remained in step from the front-month futures contract, up 10¢ to $93.19/bbl.

Heating oil for February delivery increased 1.44¢ to $3.03/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 1.31¢ to $2.78/gal.

The February natural gas contract declined 2.1¢ to $3.27/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., climbed 7¢ to $3.31/MMbtu.

In London, the February IPE contract for North Sea Brent rose 9¢ to $111.54/bbl. Gas oil for January escalated by $10 to $938.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased 53¢ to $108.15/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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