MARKET WATCH: Crude prices increase but natural gas trades down

Crude prices increased Feb. 12 with the front-month contract up 0.5% on the New York market after the Group of 7 (G7) finance ministers from the US, UK, France, Germany, Italy, Canada, and Japan agreed to avoid currency manipulation.

That reduced market fears the European Central Bank might try to manipulate the value of the euro, said analysts in the Houston office of Raymond James & Associates Inc. Natural gas futures traded down 1.5%.

“Last night's State of the Union address outlined an expansive agenda, though it did little to bridge the gap between Democrats and Republicans [in] budget debates,” Raymond James analysts reported. They noted President Barack Obama in that address “drew an explicit link between the intensity of recent weather events and climate change, building on his rhetoric from the inaugural address in January. However, it was very slim pickings as far as actual policies go.”

Obama urged Congress to pass carbon legislation but didn't state a preference between cap-and-trade or a carbon tax—“something that, we are quite certain, he knows is not going to happen given the current political balance,” Raymond James analysts said. Obama hinted he would take executive action if Congress does not act but provided no details.

“Elsewhere on the energy front, there was even less substance—not even a hint of such hot-topic issues as the Keystone pipeline or liquefied natural gas exports. Insofar as renewables go, President Obama made his standard pitch for not allowing China and other countries to lead in these industries, but there were no new proposals.”

At Globaldata in London, Matt Jurecky, director of energy research and consulting, said, “With an economy resigned to crude oil prices hovering near $100/bbl and natural gas prices having maintained a sub-$5/MMbtu pattern for over 2 years, President Obama blanked the oil and gas industry in his annual State of the Union address.”

Citing low natural gas prices as the reason for lower energy bills, Obama called for more investment in alternative fuels like wind and solar energy. He also proposed diverting tax revenues from the oil and gas industry to fund transportation fuel alternatives through an Energy Security Trust.

Jurecky noted the oil and gas industry has been central to US job creation over the last decade, shrinking the trade balance and providing increased government revenue. “Growth of the domestic industry has also decoupled the US benchmark for crude prices, West Texas Intermediate, from the more global benchmark, North Sea Brent, reducing the country’s exposure to global geopolitical volatility,” he said.

“An absence of issues” such as fracking regulation, approval of the Keystone XL pipeline, and LNG exports from the president’s speech signals their “lack of priority” within his administration. That means “the private sector will be required to continue leading the charge on replacing crude imports from unfriendly nations, advancing safer drilling of unconventional reservoirs, and creating a mega-industry in natural gas,” Jurecky said.

However, James C. West, analyst with Barclays Capital Inc., was encouraged by Obama’s “supportive commentary on oil and gas drilling permits and the potential for government directed investment in modern pipelines and R&D overseen by the Department of Defense and Department of Energy. We view the commentary as positive for further development of the nation's hydrocarbon resources, particularly natural gas due to its low carbon and abundant nature.” 

 

US inventories

The Energy Information Administration said Feb. 13 commercial US crude inventories increased just 600,000 bbl to 372.2 million bbl in the week ended Feb. 9, well below the Wall Street consensus for a 2.2 million bbl gain. Gasoline stocks dropped 800,000 bbl to 233.2 million bbl contrary to analysts’ expectations of a 500,000 bbl increase. Finished gasoline inventories increased while blending components decreased. Distillate fuel inventories fell 3.7 million bbl to 125.9 million bbl in the same period, more than double the anticipated 1.8 million bbl decrease.

Imports of crude into the US were down 56,000 b/d to 7.5 million b/d last week. In the 4 weeks through Feb. 8, crude imports averaged 7.7 million b/d, 1 million b/d less than in the comparable period a year ago. Gasoline imports last week averaged 611,000 b/d, while distillate fuel imports averaged 143,000 b/d.

The input of crude into US refineries decreased 121,000 b/d to 14.3 million b/d with units operating at 83.8% of capacity last week. Gasoline production increased to 8.9 million b/d, but distillate fuel production decreased to 4.4 million b/d.

 

Energy prices

The March contract for benchmark US light, sweet crudes continued its rebound, up 48¢ to $97.51/bbl Feb. 12 on the New York Mercantile Exchange. The April contract increased 49¢ to $98.07/bbl. On the US spot market, WTI at Cushing, Okla., was up 48¢ to $97.51/bbl.

Heating oil for March delivery regained 0.47¢ to $3.24/gal on NYMEX. Reformulated stock for oxygenate blending for the same month climbed 2.91¢ to $3.05/gal.

The March natural gas contract fell 4.9¢ to $3.24/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., rose 10¢ to $3.32/MMbtu.

In London, the March IPE contract for North Sea Brent took back 53¢ to $118.66/bbl. Gas oil for February was unchanged at $1,026.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 6¢ to $114.30/bbl.

Contact Sam Fletcher at samf@ogjonline.com

 

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