Sam Fletcher
Senior Writer
HOUSTON, Mar. 31 -- The near-month crude contract fell nearly $2/bbl Mar. 28 as a bombed oil export pipeline in Iraq was reported repaired and the US dollar strengthened, but it rebounded above $106/bbl in early trading Mar. 31 as the dollar slipped to a low of $1.5895 against the euro.
Long-term weakness of the dollar has encouraged investors to hedge against the tumbling currency by buying crude and gold futures. However, government figures last week showed the US economy grew only 0.6% in the fourth quarter of 2007, which implies reduced demand.
"The weak dollar and tensions in Iraq have led toward increased investment in [oil and gas] commodities," said analysts in the Houston office of Raymond James & Associates Inc. However, they said, "We expect prices for both commodities to come down in the near term given our belief that the fundamentals do not appear as bullish as current prices would suggest."
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The dollar index gave back the gains of the previous week; hence crude oil gave back the losses of the previous week. The euro is now facing a strong resistance line and the fate of crude oil will depend very much on whether the euro manages to break the $1.585 resistance towards $1.60. If the euro was to break towards $1.60, then the correlation trade should push West Texas Intermediate to break $110/bbl towards $115/bbl. There is nothing really fundamental about that, but it is a prevailing technical trade."
Despite a general drop in energy prices on Mar. 28, Jacob said, "WTI gained $3.78/bbl during the calendar week and Brent was following closely with [an increase of] $3.39/bbl." In products, the May heating oil contract was up $3.41/bbl for the week, and reformulated blend stock for oxygenate blending (RBOB) was slightly higher at $4.25/bbl. The May natural gas contract increased 7.2% in the same period. WTI is higher by $39.75/bbl compared to the same period last year, Jakob noted.
"For the second consecutive week, the net futures length held by large speculators was reduced and as [happened the previous] week, this was done in a relative aggressive fashion," Jakob said. "The large speculative funds have not been adding to long positions on the break of $100/bbl and have been taking profit on length on the approach to $110/bbl. But like last week, they are now also adding to short positions."
Earlier, Paul Sankey, senior energy analyst for Deutsche Bank, New York, said it is not the speculators that are pushing up oil prices as many claim. "Oil supply is weak and global demand is strong, so the oil price is high," he said (OGJ Online, Mar. 28, 2008).
In other news, Raymond James analysts said hydroelectric power generation should increase this summer, offsetting demand for 1.2 bcfd of natural gas equivalent, because of higher snowfall levels this winter. "Likewise, we could see as much as 200 MMcfd less nuclear power generation due to higher planned outages. Combined, these could displace over 1 bcfd of natural gas demand summer over summer. Assuming not all of the increase offsets natural gas consumption, it is more reasonable that the net impact of changes in nuclear and hydroelectric power generation will offset 500 MMcfd-1 bcfd of gas demand. Bottom line: Increased hydro this year will offset much of the gas-fired electric demand growth that has occurred over the past 2 years," they said.
Energy prices
The May contract for benchmark US light, sweet crudes traded as high as $107.63/bbl before closing at $105.62/bbl, down $1.96 Mar. 28 on the New York Mercantile Exchange. The June contract lost $1.68 to $104.91/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.94 to $105.63/bbl. Heating oil for April delivery declined 4.33¢ to $3.11/gal on NYMEX. RBOB inched up 0.07¢, but its closing price was essentially unchanged at $2.72/gal. Meanwhile, high crude prices and weak gasoline demand has severely reduced profit margins for US refiners.
The May natural gas contract gained 11.3¢ to $9.80/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 16.5¢ to $9.44/MMbtu.
In London, the May IPE contract for North Sea Brent crude dropped $1.23 to $103.77/bbl. The April gas oil contract retreated 75¢ to $962/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost 59¢ to $99.77/bbl on Mar. 28. So far this year, OPEC's basket price has averaged $92.41/bbl, compared with $69.08/bbl for all of 2007.
Contact Sam Fletcher at [email protected].
