MARKET WATCH: Cypriot agreement boosts oil prices

Energy prices generally were up Mar. 25 with front-month crude up 1.2% in the New York market after European leaders reached a bailout agreement with Cyprus, but other economic indicators remain mixed.

“Oil markets enjoyed a good start to the week, with both benchmarks ending the day in the black,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. However, the front-month natural gas futures contract was down 1.7%.

The agreement for Cyprus will protect insured bank deposits but likely will inflict losses on uninsured deposits above €100,000 in troubled banks. Officials said the central bank will impose temporary restrictions on financial transactions. They earlier said Cypriot banks would reopen Mar. 26, but that has now been pushed back to Mar. 27.

“While Cypriot depositors couldn't take money out of banks, investors took money out of the [equity] market, with the Dow Jones Industrial Average falling 0.4% as the Dutch finance minister suggested that future bank rescues should follow the Cyprus model. Natural gas ended the trading session down 1.7% while crude traded up 1.2%,” said analysts in the Houston office of Raymond James & Associates Inc.

The oil market was more optimistic “largely due to improved market sentiment and increased appetite for risk, off the news that Cyprus had secured a deal to ensure it would receive the necessary bailout funding from the European Union and the International Monetary Fund,” Ground reported. “However, this optimism was somewhat dented after [Dutch Finance Minister Jeroen Dijsselbloem, new head of the Eurogroup of Euro-zone finance ministers] argued that Cyprus is a useful template for how depositors in other countries could be affected in the future, should banks require EU rescues. This sent the euro lower, taking oil markets with it off the back of dollar strength (and no doubt deflated optimism as participants grew anxious about the state of the rest of the Euro-zone).”

The upward momentum of oil prices resumed overnight in Asian markets and continued in early trading Mar. 26, “although only for West Texas Intermediate—Brent is trading mostly sideways,” said Ground. There’s no “specific reason” for the WTI price rebound, but it could “have to do with expectations of improved pipeline access for US crude oil production, which might help work down massive crude oil inventories,” he said.

Meanwhile, US sales of new homes fell 4.6% in February from a 4-year high in January. Still February sales were up 12.3% from a year ago.

In a separate report, the Conference Board private research group said its Consumer Confidence Index fell to 59.7 in March, down analysts’ expectations of a reading of 68.7 and below a revised 68 in February. A healthy economy would have a reading of at least 90. Analysts said consumers are worried about government spending cuts.

On the other hand, the US Department of Commerce reported factory orders for durable goods escalated 5.7% in February, the largest increase in 5 months.

Energy prices

The May contract for benchmark US sweet, light crudes climbed $1.10 to $94.81/bbl Mar. 25 on the New York Mercantile Exchange. The June contract rose $1.13 to $95.09/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.10 to $94.81/bbl.

Heating oil for April delivery declined 0.71¢ to $2.88/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased a minimal 0.01¢ but closed essentially unchanged at a rounded $3.06/gal.

The April natural gas contract lost 6.2¢ to $3.87/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 5.3¢ to $4.09/MMbtu.

In London, the May IPE contract for North Sea Brent was up 51¢ to $108.17/bbl. Gas oil for April advanced $2.25 to $900.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained 35¢ to $105.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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