MARKET WATCH: Oil prices continue dropping

Oil prices continued falling Apr. 12 with crude down 1.5% through last week on the New York market. Natural gas, however, continued its rally, up 2% for the week.

Crude and other commodities declined sharply in early trading Apr. 15 “as weak US retail sales and consumer confidence numbers prompted a rethink about the health of the global economy and, consequently, the health of global commodity demand,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

In Houston, analysts with Raymond James & Associates Inc. projected the price spread between West Texas Intermediate and North Sea Brent will narrow this year and then widen again in 2014.

The WTI-Brent spread “blew out well above any transportation cost metric about 2½ years ago and has never really looked back”—until recently, they said. “With the recent expansion of the Seaway pipeline, more rail bypassing Cushing, Okla., and the imminent start-up of more Permian and Cushing pipelines, we are finally starting to see the bloated WTI-Brent spread begin to shrink,” Raymond James analysts reported. “While pipeline start-up timing is always questionable, our most recent math now suggests that the Cushing bottleneck should mostly be alleviated by late summer or early fall of 2013. That means the WTI-Brent spread should continue to shrink though the summer of 2013.”

Therefore, they reduced their 2013 WTI-Brent spread forecast to $10/bbl for the last half of the year from their previous outlook of $20/bbl. “While consensus spread expectations call for this $10/bbl spread to continue through 2014, we still think the WTI-Brent spread will widen again in 2014 as limits of Gulf Coast refining capacity drive a widening Louisiana Light Sweet to Brent spread,’ Raymond James analysts said.

Energy prices

The May contract for benchmark US light, sweet crudes dropped $2.22 to $91.29/bbl Apr. 12 on the New York Mercantile Exchange—“its lowest close since early March,” Ground reported. The June contract fell $2.24 to $91.61/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., also was down $2.22 to $91.29/bbl.

Heating oil for May delivery declined 2.73¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 2.92¢ to $2.80/gal.

However, the May natural gas contract climbed 8.3¢ to $4.22/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 9.5¢, also closing at a rounded $4.22/MMbtu.

In London, the May IPE contract for North Sea Brent was down $1.16 to $103.11/bbl, its lowest close since July. The new front-month May contract for gas oil fell $26 to $856/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $1.81 to $100.63/bbl. So far this year, OPEC’s basket price has averaged $108.73/bbl, down from an average $109.45/bbl for all of 2012.

Contact Sam Fletcher at samf@ogjonline.com.

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