MARKET WATCH: New York crude prices continue rally

Crude prices continued to climb Mar. 8 in the New York futures market on news the US unemployment rate slipped to 7.7% in February—its lowest level in 4 years—from 7.9% in January.

However, the full effect of nonfarm employment data on the oil market “is difficult to predict, given the opposing influences the number has on investment vs. real demand,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “A strong number dampens investor enthusiasm due to increased uncertainty over the Fed’s commitment to quantitative easing, while [it] also implies a stronger US economy. It appears though that the much-better-than-anticipated number fueled US demand optimism, sending West Texas Intermediate prices, on balance, higher. Brent ended flat, weighed down by the reopening of a North Sea pipeline after a 5-day shutdown.”

Meanwhile, US Commodity Futures Trading Commission data showed net speculative length for WTI in the New York market fell for the third consecutive week. The last time this happened was in early November. Ground said, “While momentum did slow, the underlying moves remained disconcerting; participants continued to position for more downside. Speculative shorts grew 5.6 million bbl (a fifth successive increase), while longs of 1.2 million bbl were unwound.”

Crude and petroleum product prices were down in early trading Mar. 11 while natural gas continued to rise in the New York market.

Analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, noted the price of North Sea Brent declined 7.6% in the past month and recently dipped below price levels for comparable periods in both 2011 and 2012. “Not that we are forecasting Brent continuing its decline back to 2012 levels in the foreseeable future, but clearly the ceiling of $120/bbl is more than just glass, and our continued forecast of Brent trading in the $110/bbl range (plus or minus $10/bbl) for 2013 remains,” they said.

A recent study by the Organization for Economic Cooperation and Development estimated crude could be trading between $150-270/bbl in today’s prices by 2020, with their forecast at $190/bbl by the end of this decade. That’s up sharply from KBC’s forecast of $140/bbl by 2020. “The OECD study looks at continued rising oil demand in developing Asia outpacing the reductions in oil intensity necessary to ensure demand does not outstrip supply,” KBC analysts said. “It’s certainly a study which goes against the majority of current supply-demand forecast analysis where the downwards pressure on crude prices outweighs the upside, predominantly a result of the tight oil revolution in the US continuing to expand and develop elsewhere.”

Meanwhile, China National Petroleum Corp.—“the state-run and largest of China’s oil companies”—indicated its continued interest in investing in US oil projects. “State participation is expected to be the strategy for Chinese investment in the US, with China Petrochemical Corp (Sinopec) agreeing to buy a stake in an Oklahoma field from Chesapeake Energy Corp for $1.02 billion last month. These investments will allow Chinese companies to obtain operating experience, combined with state-of-the-art technology for future transfer back to China,” KBC analysts said.

Energy prices

The April contract for benchmark US light, sweet crudes rose 39¢ to $91.95/bbl Mar. 8 on the New York Mercantile Exchange. The May contract gained 40¢ to $92.43/bbl. On the US spot market, WTI at Cushing, Okla., was up 39¢ to $91.95/bbl.

Heating oil for April delivery dipped 0.46¢ to $2.97/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, bumped up 8.02¢ to $3.20/gal.

The April natural gas contract increased 4.7¢ to $3.63/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 3.2¢ to $3.58/MMbtu.

In London, the April IPE contract for Brent decreased 30¢ to $110.85/bbl. Gas oil for March dropped $6.50 to $924.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 25¢ to $107.06/bbl. So far this year, OPEC’s basket price has averaged $110.44/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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