MARKET WATCH: Weak dollar, colder weather push up energy prices

Oct. 13, 2009
Oil prices continued to climb Oct. 12, buoyed by the weak US dollar, and natural gas regained some of its previous losses with forecasts for below-normal temperatures in the eastern US over the next 6-10 days following record cold temperatures in the West this past weekend.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 13 -- Oil prices continued to climb Oct. 12, buoyed by the weak US dollar, and natural gas regained some of its previous losses with forecasts for below-normal temperatures in the eastern US over the next 6-10 days following record cold temperatures in the West this past weekend.

“Today’s oil demand fundamentals remain weak, but the oil price is being held within a $65-75/bbl range with a weak dollar coming to the rescue whenever the price heads to the lower end of the range,” said analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Oil also gained support from reports that the China National Offshore Oil Corp. may unite with the Ghana National Petroleum Corp. to outbid ExxonMobil Corp.’s $4 billion offer for Kosmos Energy LLC’s [30%] stake in the Jubilee oil field off the Ghana coast. Kosmos later said that the agreement to sell to Exxon is binding, but the report is another indication that the Chinese will bid for all energy reserves that are for sale.” They concluded, “The Chinese will continue to provide support for the price of crude.”

Analysts in the Houston office of Raymond James & Associates Inc. said oil tested the $75/bbl resistance mark in premarket trading Oct. 13 after the Organization of Petroleum Exporting Countries slightly increased its forecast for 2010 global oil demand for the second consecutive month. OPEC is now forecasting 2010 global oil demand of 84.9 million b/d, up 1% from 2009 demand. “For reference, the International Energy Agency is forecasting a 1.8% increase in oil demand, and we are modeling a 1.1% increase,” Raymond James analysts said.

Despite an across-the-board rally in energy prices on the New York market, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “We have…seen markets with greater conviction than what was shown yesterday. All the gains on West Texas Intermediate were made outside of the open session; the gasoline cracks continued to erode; and we are not positively impressed by the drop of open interest seen on [Oct. 9]. This remains an extreme technical market and we find no real fundamental story to promote.”

Refining margins squeezed
Jakob said, “The technical support on crude oil is still playing against the refining margins, and this should continue to create a two-tier market between the physical and the paper barrels, but a rewidening of the WTI contango will probably be required before financial players start to question the validity of the rally.”

KBC Market Services analysts said, “Refining is in a bad way. With the announced closure of Sunoco's 150,000 b/d Eagle Point, NJ, refinery, we're seeing concrete signs of the real pain that independent refiners are feeling in the present margin climate.” Sunoco Inc., the second-largest US independent refiner, earlier said it is closing indefinitely all processing units at its Eagle Point refinery at Westville, NJ, and shifting current production to other refineries within its system (OGJ Online, Oct. 6, 2009).

KBC analysts said, “The closure of a refinery in the US Northeast is a really damning and depressing indicator of the state of refining. The region is product-short and traditionally relies on millions of barrels of imports from Europe and by pipeline from the US Gulf Coast to meet regional demand.”

They said, “It will take several years for refining to regain its luster. Margins will remain under pressure until a glut of capacity works itself through the market via lower utilization, refinery closures, and the recovery of demand. Refining is likely to emerge a smaller fraternity, with larger, more complex facilities, lower net carbon emissions, and a renewed focus on energy efficiency and cost control.”

In other news, IHS Cambridge Energy Research Associates reported, “Oil demand in developed countries—currently 54% of all oil demand—likely reached its all-time peak in 2005.” Analysts said, “While world oil demand is now set to grow as the world economy moves from recession to recovery, the demand lost in 30 developed countries that make up the Organization for Economic Cooperation and Development is not likely to ever be regained.”

Energy prices
The November contract for benchmark US sweet, light crudes gained $1.50 to $73.27/bbl Oct. 12 on the New York Mercantile Exchange. The December contract rose $1.49 to $73.74/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.50 to $73.27/bbl. Heating oil for November delivery climbed 4.16¢ to $1.89/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month increased 3.1¢ to $1.80/gal.

The November contract for natural gas rebounded 11¢ to $4.88/MMbtu on NYMEX. On the spot market, gas at Henry Hub, La., was up 7.5¢ to $4/MMbtu.

Pritchard Capital Partners said, “The current price resistance level for natural gas is $5/Mcf, and for the current rally to continue, natural gas will first have to break and close above the $5/Mcf level,” they said.

In London, the November IPE contract for North Sea Brent increased $1.36 to $71.36/bbl. Gas oil for October was unchanged at $573.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes gained $1.20 to $70.06/bbl on Oct. 12.

Contact Sam Fletcher at [email protected].