MARKET WATCH: Energy prices fall as recession deepens in Europe

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 30 -- Energy prices fell Mar. 27 in the New York market as the US dollar strengthened against the euro on reports of a deepening recession in Europe.

In New Orleans, analysts at Pritchard Capital Partners LLC said, "The correction is overdue given the recent big advance [up $20/bbl or 59%] in crude prices." Crude prices continued falling in early trading Mar. 30 after President Barack Obama withheld further federal bailouts for General Motors and Chrysler.

In Houston, analysts at Raymond James & Associates Inc. said, "Crude oil, specifically, is trading lower as investors cash in on last week's gains as well as renewed doubts about the size of potential output cuts by leading oil exporters. At an energy conference over the weekend in Kuwait, Qatar's oil minister Abdullah bin Hamad al-Attiyah said he was satisfied with $50 crude oil, given the impact that the current global economic crisis has had on world energy demand."

Olivier Jakob at Petromatrix, Zug, Switzerland, noted the benchmark US crude tried last week to crack the $55/bbl price level but finished "almost unchanged," up just 31¢/bbl for the week. North Sea Brent gained 76¢/bbl in the same period. Heating oil increased by $1.70/bbl during the week, and reformulated blend stock for oxygenate blending (RBOB) was up $1.23/bbl. The front-month natural gas futures price fell 14%, however.

Natural gas prices also were still falling in early trading Mar. 30 on the New York futures market. "The selloff started (Mar. 26) after a surprise storage build, which widened the surplus of supplies to 20% or 280 bcf over the 5-year average. This news quickly re-shifted investor focus back to the fundamentals—a well-supplied gas market with weak demand," said Pritchard Capital Partners. "We see the US rig count bottoming in the next couple of months, with a production response expected sometime in the late third or early fourth quarters."

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said on Mar. 30, "Middle distillates are at the mercy of declining industrial activity and the end of the heating season, but lower prices have definitely put a floor under US gasoline demand." They claim that "confidence in $50-plus oil" is firming among traders and that the crude futures price will likely rise again if there is no further demand destruction and the Organization of Petroleum Exporting Countries maintain production discipline.

The G-20 group—19 of the world's largest economies plus representatives from the European Union—is to meet Apr. 2 in London to discuss global economic conditions. That might indicate "that governments could finally be getting on top of the economic crisis," said KBC analysts. "But worries still persist, of course, and a poor outcome from the G20 meeting (which will only contain about 6 hours of substantive formal discussion in order to save the world) could return us to doom and gloom."

Energy prices
The May contract for benchmark US light, sweet crudes dropped $1.96 to $52.38/bbl Mar. 27 on the New York Mercantile Exchange. The June contract declined $1.76 to $54.02/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was back in sync with the front-month futures price for crude, down $1.96 to $52.38/bbl. Heating oil for April delivery lost 4.85¢ to $1.43/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month retreated 4.32¢ to $1.49/gal.

The April natural gas contract dropped 31.6¢ to $3.63/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 32¢ to $3.72/MMbtu.

In London, the May International Petroleum Exchange contract for North Sea Brent crude was down $1.48 to $51.98/bbl. Gas oil for April dropped $8 to $455.25/tonne.

The OPEC Secretariat in Vienna was closed Mar. 30, so there was no update in the average price for its basket of 12 reference crudes.

Contact Sam Fletcher at [email protected]