MARKET WATCH: New York crude futures prices continue to rise

The price of crude continued rising in the New York market with the front-month contract inching up 0.4% Mar. 12 as the US dollar slipped against the yen for the first time in a week and US Treasury prices rose as investors took advantage of recently higher yields. Front-month natural gas dipped 0.1%.

In the broader market, the Standard & Poor’s 500 Index declined 0.2%, ending a seven-session rally. The Dow Jones Industrial Average rose for the eighth consecutive session, its longest rally in more than 2 years, but was down in early trading Mar. 13.

“Despite unexpected optimism for a budget deal in Congress and increased confidence in the Federal Reserve Bank’s quantitative easing program, the Euro-zone is reemerging as a potential area of weakness ahead of Italy's latest bond sale,” said analysts in the Houston office of Raymond James & Associates Inc.

The gap between prices for North Sea Brent and West Texas Intermediate continued to narrow, partially because of “uncertainty over possible (but yet unconfirmed) changes to South Korean import-export taxes,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

In its latest Oil Market Report, released Mar. 13, the International Energy Agency in Paris noted oil futures prices reversed their upward trend in mid-February, with benchmark Brent crude falling to 9-week lows in early March. IEA officials reported global oil supply inched up 90,000 b/d to 90.8 million b/d in February led by a 150,000 b/d hike in production by the Organization of Petroleum Exporting Countries to 30.49 million b/d, primarily from increased Iraqi supply.

“Non-OPEC output slipped by 60,000 b/d in February to 54.1 million b/d but remained 600,000 b/d higher than last year, as North American output growth offset lower European and Latin American supply. Non-OPEC supply is forecast to grow by 1.1 million b/d in 2013 to 54.5 million b/d,” OPEC officials reported.

But the fact increased North American production is offsetting the decline in European and Latin American output “shouldn’t come as a surprise,” said Paul Shrieve, senior vice-president for technical assurance at GL Noble Denton, part of the GL Group.

“European output capabilities are still clearly feeling the effects of strong economic headwinds, but there are growing signs that an ongoing resurgence in North Sea oil and gas activity will help to temper this. The UK and Norway have been identified as top investment destinations this year, and there are suggestions that North Sea investment is reaching record levels. The realization of this output potential will depend on the availability of skilled professionals. According to our research, a shortage of skilled labor will be the greatest barrier to industry growth in 2013, despite predictions that increasing investment in the North Sea will create thousands of new jobs over the next few years. If the skills challenge can be overcome, we may see an increase in European production.”

IEA reduced its 2013 demand forecast to 90.6 million b/d from 90.7 million b/d, reflecting weak economic signals from several key oil markets. Raymond James analysts said, “While the IEA has come closer to our demand numbers in recent months, we still believe the IEA estimate is 120,000 b/d too high. We are modeling 2013 demand of 90.5 million b/d, reflecting Japan's structural decline in crude demand.”

They said, “The updated 2013 IEA forecast is incrementally bearish, but we contend that global supply-demand fundamentals will become even more bearish. We continue to believe Organization for Economic Cooperation and Development inventories will rise above previous all-time highs this year, necessitating a meaningful price correction.”

US inventories

The Energy Information Administration said Mar. 13 commercial US crude inventories increased 2.6 million bbl to 384 million bbl in the week ended Mar. 8, up from the Wall Street consensus for a 2.3 million bbl build and with total inventory well above average for this time of year. Gasoline stocks fell 3.6 million bbl to 224.3 million bbl in the same period, far exceeding analysts’ expectations of a 1.2 million bbl draw. Both finished gasoline and blending components were down. Distillate fuel inventories inched up 100,000 bbl to 120.4 million bbl as opposed to a market outlook for a 2 million bbl drop.

Imports of crude into the US increased 227,000 b/d to 7.5 million b/d last week. In the 4 weeks through Mar. 8, US crude imports averaged 7.6 million b/d, down 1.3 million b/d the comparable period in 2012. Gasoline imports last week averaged 727,000 b/d, while distillate fuel imports averaged 254,000 b/d.

The input of crude into US refineries declined 37,000 b/d to 14 million b/d last week with units operating at 81% of capacity. Gasoline production increased to 9 million b/d, but distillate fuel production decreased to 4.2 million b/d.

Natural gas exports

EIA earlier reported US natural gas exports to Mexico increased 24% to 1.69 bcfd during 2012, the highest level since data collection began in 1973. Mexico’s gas consumption also is at a record high, with imports exceeding 30% of its total supply.

In 2007-11, Mexico’s gas consumption rose 4%/year while domestic production increased only 1.2% annually. Growing demand in the industrial sector drove Mexico’s gas consumption in Mexico to a record-high level in 2011, according to Petroleos Mexicanos. Prior to 2006, almost all of Mexico’s gas imports came from the US, but the country has since diversified its supply through imports of LNG from Nigeria, Qatar, Indonesia, Peru, and Yemen.

The vast majority of imported gas still comes from the US, however. Pipeline shipments from Texas to Mexico rose 34% to 1.3 bcfd in 2009-12 before escalating last year. Most of the US exports departed from Hidalgo County in southwest Texas, “where the supplies were likely coming from the Eagle Ford play,” EIA said.

Several US pipeline projects have been announced that would increase gas exports to Mexico by the end of 2014. If all are built, they would add 3.5 bcfd additional export capacity to meet an expected increase in demand from Mexico's electric power sector.

Energy prices

The April contract for benchmark US light, sweet crudes rose 48¢ to $92.54/bbl Mar. 12 on the New York Mercantile Exchange. The May contract increased 40¢ to $92.92/bbl. On the US spot market, WTI at Cushing, Okla., was up 48¢ to $92.54/bbl.

Heating oil for April delivery continued its decline, down 2.07¢ to $2.95/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.22¢ but closed essentially unchanged at a rounded $3.15/gal.

The April natural gas contract slipped 0.4¢ but closed virtually unchanged at a rounded $3.65/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., continued climbing, up 2.2¢ to $3.71/MMbtu.

In London, the April IPE contract for Brent crude decreased 57¢ to $109.65/bbl. Gas oil for March was unchanged at $925/tonne.

The average price for OPEC’s basket of 12 benchmark crudes lost 45¢ to $106.51/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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