MARKET WATCH: Energy prices soar higher

Energy prices soared higher Feb. 14 with the US reporting fewer claims for jobless benefits, Japan's economy growing 0.9% in the fourth quarter, and Venezuela still rattling its oil weapon in its dispute with ExxonMobil.

Feb. 15, 2008

4 min read

Sam Fletcher
Senior Writer

HOUSTON, Feb. 15 -- Energy prices soared higher Feb. 14 with the US reporting fewer claims for jobless benefits; Japan's economy growing 0.9% in the fourth quarter, more than double expectations; and Venezuela still rattling its potential oil weapon in its nationalization dispute with ExxonMobil Corp.

Other sources reported seaborne exports from the Organization of Petroleum Exporting Countries were down 279,000 b/d in January from December, with exports forecast to drop 140,000 b/d in the four weeks to Mar. 1. Meanwhile, US Federal Reserve Chairman Ben Bernanke told a Senate committee that the US economic outlook had worsened and that the central bank would do what is necessary to support growth.

The International Energy Agency cut its 2008 forecast for global oil demand by 200,000 bbl to 87.6 million bbl, bringing it closer to OPEC's demand forecast of 87.07 million b/d.

The Federal Reserve said Feb. 15 that the trade deficit fell in December and for 2007 as a whole with the US exporting more goods.

"Yesterday, the broader market shrugged off Cupid's euphoric nature and instead focused on bearish signals from Ben Bernanke, chairman, and former Fed Chairman Alan Greenspan, former chairman of the Board of Governors of the US Federal Reserve of the United States (who both pointed to a significant impending economic slowdown) as well as worries over continued write-downs in the banking sector," said analysts in the Houston office of Raymond James & Associates Inc. "On the oil side, prices are currently at a 1-month high as recent geopolitics have helped spur the oil bulls back into the market."

Paul Horsnell at Barclays Capital Inc., London, said, "The oil market made a series of highly significant breeches of the $90/bbl yesterday. First, the value of the OPEC basket passed back above $90 for the first time in 5 weeks. Second, and far more spectacularly, the entire West Texas Intermediate curve [on the New York futures market] settled above $90/bbl for the first time The cheapest point on the WTI curve is currently June 2012, which settled at $90.68/bbl. All-time highs were set along the WTI curve for all contract durations after and including the 14th month out. Third, at the back of the exchange-traded WTI curve, the December 2015 contract settled at $92.35/bbl, further extending the 5-year long steady march up at the back of the curve."

Horsnell said, "Over the past 5 years, the back end of the WTI curve has risen from $23/bbl to $92/bbl. It seems very difficult to believe that such a remorseless process of change in expectations about long-term prices is now going to conveniently stop before the back end reaches $100/bbl. For the back end not to reach $100/bbl would now seem to require some sudden change in the dynamic of fundamental expectations, and that would not appear to be something that can be credibly placed in the base case at this point. Fourth, the Brent market forward curve achieved the same elevation, with all Brent contracts settling above $90/bbl, also for the first time ever."

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Technical traders will now have to move the objective to $100/bbl, but they will be facing more oscillators pointing to overbought conditions. It is hard to pinpoint the fundamental story that would justify a break of $100/bbl. Hence we would expect to see some length profit-taking starting to take place between $97-100/bbl."

Energy prices
The March crude contract of benchmark US sweet, light crudes jumped by $2.19 to $95.46/bbl Feb. 14 on the New York Mercantile Exchange. The April contract escalated $2.14 to $95.55/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.68 to $95.47/bbl. Heating oil for March delivery advanced 5.1¢ to $2.67/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) jumped 8.62¢ to $2.48/gal.

The March natural gas contract price gained 38.4¢ to $8.77/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $8.35/MMbtu.

In London, the March IPE contract for North Sea Brent increased $1.77 to $95.09/bbl. The new front-month March contract for gas oil gained $14 to $847.25/tonne.

The average price for OPEC's' basket of 12 benchmark crudes was up $1.14 to $90.79/bbl on Feb. 14.

Contact Sam Fletcher at [email protected].