Sam Fletcher
Senior Writer
HOUSTON, Feb. 20 -- For the first time ever, a front-month crude contract closed above $100/bbl Feb. 19 in New York among growing fears about energy supplies after an explosion and fire shut down a Texas refinery.
Four workers were injured, but no fatalities were reported following an explosion and fire Feb. 18 at Dallas-based Alon USA Energy Inc.'s 70,000 b/d sour crude refinery in Big Spring, Tex. (OGJ Online, Feb. 19, 2008). The fire was extinguished, and the cause of the explosion is still under investigation. Company officials said the entire refinery was damaged in the mishap and may resume partial operation in 2 months. The company has four refineries.
The front-month natural gas contract also surged upward 4.6%, "surpassing $9/Mcf for the first time since November, largely driven by colder-than-expected weather," said analysts in the Houston office of Raymond James & Associates Inc. Cold weather forecasts triggered fears that there will be less gas in storage at the end of winter for summer cooling. Storage now stands at 1.94 tcf, 8.5% below 2007 levels but 5.9% above the 5-year average. "Despite colder-than-expected weather over the next couple of weeks, we continue to believe that prices will trend lower as the year-over-year storage surplus is eliminated over the next 3-4 weeks," said Raymond James analysts.
In January the front-month crude contract touched $100/bbl in intraday trading during the first 2008 session of the New York Mercantile Exchange, then climbed a few cents above that historic high in the second session of the new year. Since then, it has fallen back and hovered for several weeks at $85-95/bbl. However, the front-month contracts climbed more than $10/bbl during over the last seven NYMEX sessions as Venezuela announced it would halt direct oil sales to ExxonMobil Corp. (OGJ Online, Feb. 13, 2008).
"With this strong technical rally, West Texas Intermediate has moved to the top of the wider $86-100/bbl range that has been in place since October," said Olivier Jakob at Petromatrix, Zug, Switzerland. "It is one thing to trade technically within a range, but it takes conviction to break it. After failing to break the bottom of the range 10 days ago, we have now to find the arguments to justify a break of the top of the range, and those are not fully clear cut."
Raymond James analysts reported crude futures were down almost $1/bbl in premarket trading Feb. 20 because investors are expecting this week another Department of Energy report of increased US inventories of commercial crude. Because of the US Presidents' Day holiday on Feb. 18, that report will be released a day later on Feb. 21.
Still, Raymond James analysts said, "It was all green [on Feb. 19] for the energy markets as stocks rallied on expectations that OPEC will not increase, and could possibly cut, oil production. Rumors of the death of Nigerian oil delta rebel leader Henry Okah raised supply concerns and led to an afternoon surge in prices, although a spokesman for the government later indicated that Okah was alive and in custody."
Earlier this week, the Movement for the Emancipation of the Niger Delta (MEND) petitioned US President George W. Bush, who was touring Africa, for assistance in obtaining the release of Okah, alias Gbomo Jomo. Jakob said, "The extradition of Okah, the MEND leader, from Angola to Nigeria is a point of worry and a reason for short covering due to the possible escalation of violence in the power game between the MEND and the Nigerian federal government."
On the other hand, Jakob noted Royal Dutch Shell PLC said Feb. 19 that the Forcados oil field production is back at 200,000 b/d and Chevron Corp. confirmed a June start-up date for its 250,000 b/d Agbami field. Therefore, Jakob said, "Taking in account some of the improved flows, any new attack from the MEND will not necessarily add up to a net loss compared to the levels of a month ago."
Meanwhile, in a Feb. 17 news interview, Gholam Hossein Nozari, Iran's oil minister reminded markets, "It is normal for the Organization of Petroleum Exporting Countries to cut its production in March every year."
However, Jakob said, "The voice that counts is the Saudi voice, and it is the normal pattern for the usual OPEC hawks to talk about all options are possible whenever a new meeting is on the horizon. Saudi Arabia has been recently producing above its quota, so it has the possibility to discretely reduce some of the flows without having to formalize it into an OPEC agreement." OPEC ministers are scheduled to meet Mar. 5, which is the same date for DOE's weekly report of US inventories of crude and petroleum products. Therefore, Jakob said, "We expect [OPEC production] decisions to be left until then."
Energy prices
The March contract for benchmark US light, sweet crudes closed at $100.01/bbl Feb. 19, up $4.51 for the day, after setting a new intraday record of $100.10/bbl on NYMEX. The April contract soared by $4.25 to $99.70/bbl. On the US spot market, WTI at Cushing, Okla., was up $4.50 to $100.01/bbl. Heating oil for March delivery gained an impressive 11.45¢ to $2.76/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) climbed 10.93¢ to $2.60/gal.
The March natural gas contract hit $9.07/MMbtu in intraday trading on NYMEX before closing at $8.98/MMbtu, up 31.7¢ for the day. On the US spot market, gas at Henry Hub, La., gained 20¢ to $8.91/MMbtu.
In London, the April IPE contract for North Sea Brent crude jumped by $3.93 to $98.56/bbl. The March gas oil contract escalated by $25.75 to $879.25/tonne.
The average price for OPEC's basket of 12 reference crudes rose $1.26 to $92.64/bbl on Feb. 19.
Contact Sam Fletcher at [email protected].
