MARKET WATCH: Oil rises, gas declines in mixed market

Sept. 29, 2009
“A bit of Iranian fear, a strong rebound in equities, and a weak dollar were the perfect supporting mix” to push up oil prices Sept. 28 on the New York market, said Olivier Jakob at Petromatrix, Zug, Switzerland.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 29 -- “A bit of Iranian fear, a strong rebound in equities, and a weak dollar were the perfect supporting mix” to push up oil prices Sept. 28 on the New York market, said Olivier Jakob at Petromatrix, Zug, Switzerland. Natural gas prices fell, however, ending a 4-day rally.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Crude oil rose in reaction to Iran test-firing a Shahab-3 missile. The successful launch puts Israel within reach of Iran.”

Both oil and gas prices were slightly lower in early trading Sept. 29. “For now, it appears crude prices are largely unaffected by Iran's defiant test fire of missiles and its decision to reveal the existence of a secret nuclear facility late last week. The Obama administration plans to work with the international community to impose sanctions on Iran,” said analysts in the Houston office of Raymond James & Associates Inc.

Pritchard Capital Partners noted, “Iran is the fourth largest producer of crude, and any discussion of sanctions against Iran could disrupt the global crude supply picture.”

Meanwhile, Raymond James analysts said, “Several meteorologists are predicting the Northeast could have its coldest winter in over 10 years, potentially strengthening demand for a variety of heating fuels, namely natural gas. In our expert opinion, 60% of the time weather bets work.”

The fall in gas prices was driven by increased supply and a shortage of storage, said Pritchard Capital analysts. “Current natural gas in storage is 3.525 tcf and total storage capacity is 3.9 tcf,” they said. “The previous record storage level was 3.545 tcf, and at the current rate of storage injections, many expect storage to hit full capacity of 3.9 tcf by the end of October, or the start of withdrawal season.”

In other news, the US Coast Guard reopened a 3-mile stretch of the Houston Ship Channel after cleaning up most of a spill that occurred Sept. 25. The Coast Guard said the 458-ft motor vessel Chemical Supplier collided with a barge near Brady’s Island and sustained a 2-ft by 4-ft gash in its fuel tank. Oil movements and refinery operations were not affected by the closure, officials said.

Militants in Nigeria nominated a team of mediators for talks with the government as the Oct. 4 amnesty deadline approaches. Jakob said, “If the federal government is able to maintain the current peace in the region, then the potential for increased supplies out of Nigeria will be an additional cap on light-end products as it should translate into higher yields.”

Jakob also noted that, despite an earlier filing with the Securities Exchange Commission, the United States Natural Gas Fund did not start reissuing shares Sept. 28 as it said it would.

Recent visits with a variety of oil field manufacturers and distributors in Terrebonne Parish, La., provided “an early indication” of where the offshore oil and gas market appears headed, said analysts at Pritchard Capital Partners. “The pipe and tool companies all had similar stories—OCTG for deepwater are almost all out for rental work while smaller pressure BOPs, pipes, and tools have not moved at all,” the analysts said. “They also said that indications of interest have not increased yet either, but pricing is bouncing along the bottom when there is work. One major supplier informed us that they sent excess inventory overseas and that the yard would remain relatively empty.”

Pritchard Capital reported, “A specialty connector manufacturer informed us that they had just added a couple of new people, but the headcount was still roughly 30% below peak levels. This example was verified by a local employment and drug testing agency that told us anecdotally that volume has increased and that personnel hires are picking up and that the agency itself was looking to hire an additional person for its office. Overall, our key takeaway is that the thesis that there may be a run on OCTG early in 2010 could be a real possibility as inventory has left the market, and the deepwater market has not been replenished by new inventory. If we see new contracts signed for the available floaters and activity pick up in jack ups, this could lead to supplier pricing power before much of the other service businesses.”

Energy prices
The November contract for benchmark US light, sweet crudes climbed 82¢ to $66.84/bbl Sept. 28 on the New York Mercantile Exchange. The December contract gained 75¢ to $67.17/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 82¢ to $66.84/bbl. Heating oil for October delivery increased 1.38¢ to $1.69/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month rose 1.75¢ to $1.64/gal.

The expiring October natural gas contract dropped 25.5¢ to $3.73/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 6.5¢ to $3.54/MMbtu.

In London, the November IPE contract for North Sea Brent crude gained 43¢ to $65.54/bbl. Gas oil for October increased $7.75 to $542.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 7¢ to $64.07/bbl on Sept. 28.

Contact Sam Fletcher at [email protected].