MARKET WATCH: Crude down 3% last week in NY futures market

Oil prices continued falling Mar. 1 with crude down 3% for the week in the New York market, erasing all previous gains in 2013. Natural gas price was down for the day but up 4% last week on an Energy Information Administration report of a sharp drop in US gas production in December.

“As expected, with the automatic spending cuts [under US Congressional sequestration rules] finally kicking in [at midnight Mar. 1] and weaker economic data coming out of China, broader market futures are down this morning,” said analysts in the Houston office of Raymond James & Associates Inc. In early trading Mar. 4, gas was in the red while crude prices were marginally higher.

“An apparently more hawkish Federal Open Market Committee [the policy-making arm of the Federal Reserve Bank] and the seemingly more conciliatory tone taken by all parties in last week’s negotiations surrounding the Iran nuclear enrichment program kept oil markets under selling pressure,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Net speculative length in benchmark crude contracts on the New York market fell for a second consecutive week. “The last time this happened was in mid-November,” Ground reported. “Disconcertingly, participants appeared to be positioning for more downside, with a 13.5 million bbl increase in speculative shorts (the largest increase since mid-December). Speculative longs fell 10 million bbl—the strongest liquidation of longs since the week ended Aug. 25.”

The potential for lower prices “is compressed but not completely absent.” Ground said, “Uncertainty surrounding the effect of the sequester on the US economy and the question marks over the extent of China’s growth going forward could keep the door to further weakness ajar.”

In other news, the US Department of State’s long-awaited supplemental environmental impact statement for the revised route of the Keystone XL pipeline's politically sensitive cross-border segment didn’t indicate any major environmental concerns (OGJ Online, Mar. 1, 2013). Instead, it acknowledged Canadian oil sands development will proceed even if the pipeline is not built. With the release of its draft SEIS, DOS has scheduled a 45-day comment period before presenting the project for presidential review. “The White House is unlikely to make a decision until the summer at the earliest, but the positive tone of the EIS will certainly raise pressure on the administration to provide approval,” Raymond James analysts said.

Energy prices

The April contract for benchmark US light, sweet crudes fell $1.37 to $90.68/bbl Mar. 1 on the New York Mercantile Exchange. The May contract dropped $1.32 to $91.14/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.37 to $90.68/bbl in step with the front-month futures contract.

Heating oil for April delivery lost 3.02¢ to $2.93/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, increased 1.69¢ to $3.13/gal.

The April natural gas contract declined 3¢ to $3.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., inched up 0.6¢ but closed essentially unchanged at a rounded $3.54/MMbtu.

In London, the April IPE contract for North Sea Brent lost 98¢ to $110.40/bbl. Gas oil for March fell $17.75 to $920.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes continued to retreat, down $1.83 to $106.79/bbl. So far this year, the OPEC basket price has averaged $110.84/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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