MARKET WATCH: Crude prices rebound; gas price boosted by cold weather forecasts

Energy prices continued to seesaw Feb. 19 with front-month crude up 0.7% in the New York futures market after a larger loss Feb. 15. The market was closed Feb. 18 for the US holiday observing George Washington’s birth.

In Houston, analysts at Raymond James & Associates Inc. credited crude’s rebound to the “easing of constraints that have kept Midwest inventories elevated.” The front-month natural gas contract jumped 3.8% on forecasts of colder weather. The Oil Service Index also increased 0.7% while the SIG Oil Exploration & Production Index was up 1.7%.

Raymond James analysts reported, “The broader market rally continued as the Standard & Poor’s 500 Index gained 0.7% to close at the highest level since October 2007. The positive moves come in part due to increased investor confidence in Germany as well as optimism regarding increases in deal activity. German investor confidence jumped to the highest level in nearly 3 years, fueling hope that the largest Euro-zone economy is recovering from its decline.”

North Sea Brent crude prices are supported “by reaccelerating global economic growth, strong global monetary stimulus, worries about growing supply losses, and increasing turmoil in the Middle East,” said analysts with the PIRA Energy Group in New York. “Oil prices endured softer January balances with surprising ease,” they said. “In Asia, product markets should be generally supported by rising turnarounds in the spring. Physical crude backs up during March and April as global refinery turnarounds peak.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Oil prices are on a fairly persistent upward trajectory this year, with Brent averaging $114/bbl year-to-date, currently around $117/bbl after starting the year at $110/bbl. This is in marked contrast to the fourth quarter, which saw prices remain relatively flat, averaging $110/bbl for the quarter. Geopolitical tensions have certainly played their part in this year’s buoyancy, although indications of a tightening market are clearly contributing to bullish sentiment.”

On the demand side, Ground said, “There has been growing optimism over the economies of the US and China (the world’s largest oil consumers) off the back of encouraging macro data flow. Besides the data flow, the pushing out of the US debt ceiling debate has also led to improved near-term demand prospects.”

Weaker supply also has contributed to a tighter market. “Since August, Saudi Arabian crude oil production has been in decline, with December showing a particularly strong drop, which has obviously weighed on overall Organization of Petroleum Exporting Countries’ production,” Ground reported. US oil production is increasing and reduction of crude stockpiles at the Cushing, Okla., exchange point via the Seaway Pipeline “has not materialized,” he said.

Nevertheless, Ground sees short-term downside risks to oil prices. “The US still faces a number of fiscal standoffs (some occurring already in this quarter) that could hurt consumer and business confidence and ultimately economic growth and oil demand. Also, while we have no doubt that the Chinese economy has landed softly, there are still considerable question marks about the extent of future growth. This uncertainty will only be heightened over the coming months by data flow distorted by the Lunar New Year holidays [in Asia], especially since the movable nature of these celebrations makes it difficult to make seasonal adjustments.”

As a result, he expects Brent prices to decline “towards $110/bbl again by the end of the quarter,” barring escalation of geopolitical tensions. “Saudi Arabia ostensibly has the spare capacity to soften any blow from this angle, which we feel should prevent prices from remaining above $120/bbl for any considerable period,” Ground said.

PIRA analysts noted, “The winter is close to winding down, but although US propane inventories are declining at a rapid pace, they remain far too high, especially this late in the season.” Moreover, they said, “Ethane stocks also remain too high, and it will take ongoing high levels of cracker operations to at least partly bring the imbalance under some control. There should be increased European and Asian LPG for feedstock buying in the months ahead, given the widening LPG discount to naphtha.”

US ethanol prices fell in the week ended Feb. 8 “for the first time in 4 weeks,” they said. “US biodiesel prices rose to the highest level since September 2012 following the restoration of the $1/gal blending credit.”

Energy prices

The March contract for benchmark US light, sweet crudes rebound 80¢ to $96.66/bbl Feb. 19 on the New York Mercantile Exchange. The April contract recouped 69¢ to $97.10 bbl. On the US spot market, West Texas Intermediate at Cushing was up 80¢ to $96.66/bbl.

Heating oil for March delivery continued to retreat, however, down 2.98¢ to $3.18/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 1.33¢ to $3.12/gal.

The March natural gas contract jumped 11.9¢ to $3.27/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 4.5¢ to $3.25/MMbtu.

In London, the April IPE contract for Brent increased 14¢ to $117.52/bbl. Gas oil for March dropped $8 to $999.75/tonne.

The average price for OPEC’s of 12 benchmark crudes decreased 56¢ to $113.62/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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