MARKET WATCH: Crude price rebounds on Chavez threats

Sam Fletcher
Senior Writer

HOUSTON, Feb. 11 -- Crude prices rebounded to almost $92/bbl Feb. 8 as Venezuelan President Hugo Chavez threatened to cut off exports to the US over a legal battle with ExxonMobil Corp.

ExxonMobil said courts in the US and the UK last week granted its requests to freeze more than $12 billion in assets of state oil firm Petroleos de Venezuela (PDVSA) to ensure compensation payment for the nationalization of two Venezuelan oil projects in which the US company was involved. ExxonMobil said it also obtained attachment orders against PDVSA assets in the Netherlands and Netherlands Antilles.

Venezuela is negotiating with several international oil companies over compensation to be paid for heavy oil projects that it nationalized last year. So far, ExxonMobil is the only firm that has taken legal action to ensure PDVSA retains assets to make payment outside that country. PDVSA Pres. Rafael Ramirez accused ExxonMobil of trying to "take the country hostage," and threatened to end exports to the US if ExxonMobil wins judgments to seize the assets in payment of a settlement. Venezuela supplies about 11% of the crude imported into this country, said analysts at Raymond James & Associates Inc.

Last week, the front-month crude futures contract "tested once again the $86/bbl [floor price] support and bounced on it again, with weekly gains of $2.81/bbl, which were concentrated on the last day of the week," said Olivier Jakob of Petromatrix GMBH, Zug, Switzerland.

Energy prices
The March contract for benchmark US light, sweet crudes traded at $88-91.98/bbl Feb. 8 on the New York Mercantile Exchange before settling at $91.77/bbl, up $3.66 for the day to the highest closing in more than a week. The April contract gained $3.57, also to $91.77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by $3.66 to $91.78/bbl. Heating oil for March delivery climbed 9.56¢ to $2.55/gal. The March contract for reformulated blend stock for oxygenate blending (RBOB) advanced 8.94¢ to $2.36/gal.

The March natural gas contract escalated 19.9¢ to $8.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 9¢ to $8.08/MMbtu. During trading Feb.8, Raymond James analysts said, "Gas prices reached $8.50/Mcf, which we expect to be near the peak of this short-term bullish run." The gas withdrawn last week from US underground storage "should be the start of a significant and quick decrease in the year-over-year storage deficit, and the weather outlook also points toward lower-than-average withdrawals over the next couple of weeks," they said.

Raymond James analysts said, "Despite recent 'bandwagon' excitement about [rising] US natural gas prices, we believe the second half of winter and the remainder of 2008 will be ugly for US gas prices. Difficult weather comparisons [with year-ago temperatures] over the next 6 weeks, surging US gas production, and an increase in summer LNG imports should drive US gas prices meaningfully lower over the next 6 months."

In London, the March IPE contract for North Sea Brent crude rose $3.43 to $91.94/bbl. Gas oil for February jumped by $29 to $817.75/tonne.

Brent gained $2.50/bbl last week and continued the unusual condition of being priced higher than US benchmark crudes on the New York market. "Heating oil outperformed the oil complex," Jakob said. "WTI is up $31.88/bbl from a year ago.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.43 to $86.24/bbl on Feb. 8.

Contact Sam Fletcher at [email protected].