MARKET WATCH: Oil prices continue retreat; cold weather raises gas price

The front-month crude contract steepened its decline to 0.8% Feb. 28 in the New York futures market while North Sea Brent dropped to a 6-week low. Colder weather pushed up natural gas, however.

“Automatic budget cuts are set to officially take place at midnight [Mar. 1] after a drawn-out standoff that ended with two party-line Senate bills both shot down yesterday,” said analysts in the Houston office of Raymond James & Associates Inc. “This particular clash of [Washington,] DC, egos isn't as big a concern for the markets as the fiscal cliff 2 months ago, but it still doesn't help.” While broader markets “barely edged down,” the SIG Oil Exploration & Production Index decreased 0.5% and the Oil Service Index dipped 0.2%. Crude, natural gas, and equities were down in early trading Mar. 1.

Analysts at Barclays Capital Commodity Research reported, “Crude oil markets extended their downward drift this week, with front-month Brent moving back within the previous range around $111/bbl. Natural gas prices traded in the upper end of the $3-3.50/MMbtu range as weather forecasts shifted colder over the week.”

The key geopolitical elements that earlier lifted Brent prices “have faded in intensity for now but remain in the backdrop with a similar frequency, providing a constant undertow of upside risks to a supply-demand equation that is currently well balanced,” they said.

Discussions this week among officials from Iran, the US, the Britain, France, China, Russia, and Germany over Iran’s nuclear program “concluded broadly in line with expectations in that it did not yield any major breakthrough,” Barclays Capital analysts said. However, a new round of negotiations is scheduled Mar. 17-18 in Turkey to be followed by “high-level talks” Apr. 5-6 in Kazakhstan.

Meanwhile, Chinese crude imports were close to record levels at 5.9 million b/d, in January, up 412,000 b/d from a year ago. “The increase in appetite for crude is due to PetroChina Co. Ltd.’s throughput boosted by new refining projects at Maoming Petrochemical, Jinling Petrochemical, and Hohhot Petrochemical that came online in the fourth quarter,” Barclays Capital analysts said. “Along with this, there was negligible amount of refinery maintenance by Sinopec [China Petroleum & Chemical Corp.] and PetroChina during January, which has helped keep runs elevated. Chinese commercial crude oil inventories have also mirrored the healthy appetite, falling for the fourth straight month and down 1% over December.”

Energy prices

The April contract for benchmark US light, sweet crudes dropped 71¢ to $92.05/bbl Feb. 28 on the New York Mercantile Exchange. The May contract declined 69¢ to $92.46/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 71¢ to $92.05/bbl.

The expiring March contract for heating oil decreased 1.6¢ to $2.97/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, gained 5.81¢ to $2.91/gal.

The April natural gas contract escalated by 5.2¢ to $3.49/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $3.54/MMbtu.

In London, the April IPE contract for North Sea Brent retreated 49¢ to $111.38/bbl. Gas oil for March lost $6 to $938.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes fell $1.07 to $108.62/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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