MARKET WATCH: Despite small final-session gains, oil prices down last week

Energy prices generally registered small increases Feb. 22, but oil finished down for the week as a whole.

“Even oil markets, which have been buoyed by growing optimism over global demand (as well as concerns over less-than-anticipated supply), could not shake off worries over an early end to the Federal Reserve Bank’s quantitative easing plans; according to the latest Commodity Futures Trading Commission data 11.2 million bbl were liquidated from net speculative length [for benchmark US light, sweet crude futures in the New York market]—the largest drop since mid-December,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Similar to the likes of gold and silver, the net decline was driven by an adding to speculative shorts (6.8 million bbl), although a 4.4 million bbl unwinding of longs played a significant part.” He sees downside risk to current demand optimism and room for prices to ease further.

However, Ground said, “Geopolitical concerns could keep oil markets on edge this week as negotiations surrounding Iran’s nuclear enrichment program resume. The distribution of risks appears to be tilted to a mild escalation of tensions this week. Although with no real change in the status quo of the past few months expected, we expect at worst a temporary rise in prices.”

In Houston, analysts with Raymond James & Associates Inc. noted the Standard & Poor’s 500 Index was down modestly last week, ending a 7-week winning streak. “Minutes released by the Fed…showed that some members were worried about the ongoing monetary stimulus, which in turn worried the markets,” they said. The Oil Service Index followed the broader markets down with a loss of 2.5%, while the SIG Oil Exploration & Production Index remained flat. The front-month contract for benchmark US crudes was down 3% for the week while natural gas was up marginally.

Saudi Arabia having “temporarily kicked the oil ‘can’ down the road by unexpectedly taking about 1 million b/d of oil supply off the market,” Raymond James analysts raised their 2013 Brent average price forecast to $105/bbl from $85/bbl and the 2013 forecast for benchmark US crude to $85/bbl from $65/bbl. “This does not mean that the global oil oversupply problem has been solved. In fact, our original over-capacity forecasts have remained remarkably consistent,” they said. “Rather, it means that Saudi Arabia now seems willing to push out the timing of the glut—and thus the bottom for oil prices—into 2014. Accordingly, we are cutting our 2014 Brent oil price forecast from $95 to $85/bbl and lowering our 2014 West Texas Intermediate price forecast from $80 to $70. We are keeping our long-term Brent forecast of $95 unchanged (with WTI at a $10 discount).”

Energy prices

The April contract for benchmark US light, sweet crudes regained 29¢ to $93.13/bbl Feb. 22 on the New York Mercantile Exchange after much bigger declines in earlier sessions last week. The March contract took back 30¢ to $93.57/bbl. On the US spot market, WTI at Cushing, Okla., was up 29¢ to $93.13/bbl.

Heating oil for March delivery inched up 0.85¢ to $3.10/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 4.31¢ to $3.08/gal.

The March natural gas contract increased 4.5¢ to $3.29/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dipped 0.1¢ with the closing price essentially unchanged at a rounded $3.29/gal.

In London, the April IPE contract for North Sea Brent increased 57¢ to $114.10/bbl. Gas oil for March lost $3.75 to $977.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes slipped further, down 33¢ to $110.94/bbl. So far this year, OPEC’s basket price has averaged $111.04/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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