MARKET WATCH Crude prices end week with decline

March 13, 2006
Energy prices declined again Mar. 10 in New York, wiping out much of the gains of the previous session's short-lived rally following a 3-day fall.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 13 -- Energy prices declined again Mar. 10 in New York, wiping out much of the gains of the previous session's short-lived rally following a 3-day fall.

Oil prices were on a downswing earlier in the week because of a market consensus that members of the Organization of Petroleum Exporting Countries would not increase their production quota at their Mar. 8 meeting. A larger-than-anticipated build in US crude inventories on the same day also helped push down prices.

In addition, the New York market for gasoline futures was weak "as traders unloaded holdings of unleaded gasoline with the additive methyl tertiary butyl ether (MTBE) and swapped into regulated gasoline blendstock for oxygen blending contracts," said Robert S. Morris at Banc of America Securities LLC, New York. Phaseout of MTBE gasoline is scheduled to begin May 6 as refiners respond to legal liability associated with the substance. The New York Mercantile Exchange plans to delist its MTBE-based gasoline contract at the end of this year.

Talk that Russia might work out a deal with Iran on the Middle Eastern country's proposed nuclear power program also undermined energy prices last week. However, Iran subsequently rejected the proposal for enriching uranium in Russia.

Morris noted that the United Nations Security Council meets this week to consider possible sanctions against Iran. "It is likely to call on that nation to cooperate fully with International Atomic Energy Agency (IAEA) inspectors as a first step," he said. "Iran has issued mixed signals with regard to cutting oil exports in retaliation if sanctions are imposed with its foreign minister stating that it had 'no intention to use oil as a weapon,' although a national security official said last week that it could inflict 'harm and pain' to match any punishment that the UN Security Council might impose."

He said these events are likely to revive geopolitical tension in the oil market, where fundamentals signal price weakness.

"Natural gas prices, after a nearly 33% retreat year-to-date, retreated only slightly further last week despite the outlook for milder temperatures this past weekend and a lower-than-expected storage withdrawal," Morris said. "Meanwhile, natural gas storage withdrawals over the next couple of weeks will likely be boosted, on the one hand, by significant coal and nuclear plant maintenance but partially offset, on the other hand, by higher-than-normal refinery shut-downs for seasonal maintenance."

Energy prices
The April contract for benchmark US light, sweet crudes dropped 51¢ to $59.96/bbl Mar. 10 on NYMEX. The May contract lost 58¢ to $61.84/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 51¢ to $59.97/bbl. Heating oil for April delivery fell by 3.54¢ to $1.68/gal. Gasoline for the same month declined by 3.2¢ to $1.69/gal.

The April natural gas contract, however, gained 4.5¢ to $6.65/MMbtu "on short-covering ahead of the weekend after a bearish storage report," said analysts at Enerfax Daily. "The price fell 2.1% last week and has plunged 58% since a record peak of $15.78[MMbtu] in December."

In London, the April IPE contract for North Sea Brent crude declined by 23¢ to $60.83/bbl. March gas oil dropped $5 to $531.75/tonne.

The average price for OPEC's basket of 11 benchmark crudes increased by 45¢ to $56.18/bbl on Mar. 10.

Contact Sam Fletcher at [email protected].