Sam Fletcher
Senior Writer
HOUSTON, Mar. 10 -- Futures prices for crude and products rallied Mar. 9, ending a 3-day fall, as traders returned their attention to geopolitical problems that may threaten crude supplies from Iran and Nigeria.
Iranian officials threatened "harm and pain" to the US, including a possible curb of its crude exports, if the United Nations Security Council imposes trade restrictions against Iran in the dispute over its proposed nuclear program.
Meanwhile, violence appeared to escalate in Nigeria with reports of militants battling army troops on the Niger Delta. Rebel activity has cut daily exports by 20% in the last 2 months (OGJ Online, Mar. 9, 2006).
Natural gas declines
With the winter heating season winding down, natural gas prices continued to slip after the US Energy Information Administration reported a lower-than-expected withdrawal of 85 bcf of gas from US underground storage during the week ended Mar. 3.
"The earlier promise of cold temperatures in March is starting to fizzle out, but heating demand and storage withdrawals have picked up in recent weeks—albeit not enough to greatly affect the sizable storage surplus amassed over the course of the mild winter," said Ronald J. Barone, managing director of equity research for the Natural Gas & Electric Utilities Group of UBS Securities LLC, New York.
"Total gas in storage is now [more than] 54% above the 5-year average for this date. Based on the temperature forecast through late March, it is almost certain that natural gas in storage will start the injection season in April with by far the most gas ever already in the ground, thereby depressing fresh storage demand," said other analysts at Enerfax Daily.
Barone said: "With so much gas in storage and so little absorbed by the market this season, many storage operators have started to enforce stipulated minimum withdrawal requirements in order to depressurize and maintain the integrity of storage caverns. As those mandatory withdrawals—estimated to be between 375 to 400 bcf—flood the market, gas prices are likely to continue in their downward trend. However, strong industrial demand coming back on line at these depressed gas prices may absorb some of the gas in storage before it hits the market."
However, Enerfax analysts said, "Near-month futures [contracts] may be resisting new lows not only for technical but also fundamental reasons. Owners of stored gas may choose where possible to hedge their position by selling winter 2006-07 futures that are over $3[/MMbtu] higher than the spot month."
Energy prices
Gasoline led the Mar. 9 rebound with the April contract jumping by 6.99¢ to $1.72/gal, pulling up other energy commodities on the New York Mercantile Exchange. Heating oil for the same month increased by 2.59¢, also to $1.72/gal.
The April contract for benchmark US light, sweet crudes gained 45¢ to $60.47/bbl Mar. 9 on NYMEX. The May position advanced by 63¢ to $62.42/bbl. On the US spot market, West Texas Intermediate was up by 45¢ to $60.48/bbl. The April natural gas contract lost 4.7¢ to $6.60/MMbtu.
In London, the April IPE contract for North Sea Brent crude gained $1.03 to $61.60/bbl. Gas oil for March delivery increased by $2.75 to $536.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 31¢ to $55.73/bbl on Mar. 9.
Contact Sam Fletcher at [email protected].
