MARKET WATCH: Crude prices top $47/bbl in optimistic market

Oil prices jumped Mar. 16 with oil topping $47/bbl after Fed Chairman Ben S. Bernanke said over the weekend the US recession likely will end this year if the government can revitalize the banking system.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 17 -- Oil prices jumped Mar. 16 with crude topping $47/bbl after Federal Reserve Chairman Ben S. Bernanke said over the weekend the US recession likely will end this year if the government can revitalize the banking system.

In a television interview Mar. 15, Bernanke said, "Until we get [financial markets] stabilized and working normally, we're not going to see recovery."

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The positive sentiment out of New York managed to fully reverse the negative sentiment out of Vienna" where the Organization of Petroleum Exporting Countries decided Mar. 15 against another production cut at this time. "While an improving equity market will be positive to oil demand as it creates a higher disposable income, trading oil on the back of equities remains exposed to the timing difference between the close of the two New York exchanges," Jakob said.

On Mar. 16, the Dow Jones Industrial Average gave back most of its daily gains after the close of the New York Mercantile Exchange. "The ability of equities to hold onto the gains of last week will be crucial to West Texas Intermediate being able to hold the $45-50/bbl range," Jakob said. "While WTI keeps a certain correlation to equities, demand is not yet strong enough for the rest of the complex to follow the path of that correlation. The product supply and demand is being capped by a glut of distillate stocks that is really calling for refinery run cuts, and as WTI tries to advance towards the $50/bbl resistance it translates into a further narrowing of the heating oil crack."

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, "OPEC finally admitted that the collapse of the world economy is too great a force to resist. If 4.2 million b/d of production cuts has not succeeded in moving the world oil price much above $45/bbl for any meaningful length of time, then another cut of 1 million b/d—widely thought to be under serious consideration—is hardly likely to do the trick. So OPEC decided to roll over its agreement and meet again in Vienna on May 28 to see if they can spot any green shoots of economic recovery."

Markets also were encouraged when Algerian Oil Minister Chakib Khelil said compliance with production quotas among OPEC members will improve to 95% by the time the group meets in May. Sources reported OPEC was in 79% compliance in February with its December decision, which in conjunction with an earlier quota adjustment was to have reduced output by 4.2 million b/d to 24.85 million b/d (OGJ Online, Mar. 16, 2009). However, crude prices were down in early trading Mar. 17.

Jakob observed, "Saudi Arabia has now to prepare for the US withdrawal from Iraq and probably did not want to upset the new US administration with an OPEC cut 2 weeks before the king meets [President Barack] Obama at the G20 meeting (Apr. 2). The Algerian oil minister has confirmed on different newswires that the G20 meeting was a 'factor' that led to OPEC (i.e. Saudi Arabia) leaving things unchanged over the weekend."

Analysts at Pritchard Capital Partners LLC, New Orleans, reported Saudi Arabia has reduced its production 18% to 7.86 million b/d since July and is willing to keep output below its quota level of 8 million b/d unless consumers want more. Analysts noted an oil price of $60-75/bbl will be necessary for production of higher-cost oil resources such as ethanols, tar sands, and heavy oils.

In other news, Chevron Corp. said Mar. 16 it shut in 10,000 b/d of crude production in Nigeria after rebel attacks ruptured an oil pipeline at the Abiteye flow station near Warri in the Niger Delta.

Pritchard Capital Partners reduced its crude price estimates to an average $52.50/bbl for 2009 from its previous projection of $60/bbl. The reduction was to $65/bbl from $75/bbl for 2010. It lowered its natural gas price estimates to $4.75/Mcf from $6.25/Mcf for 2009 and to $6.25/Mcf from $7.50/Mcf for 2010. "Although the crude oil markets appear to have bottomed, signs of weakness in the natural gas markets persist. Lower-than-expected industrial and consumer demand coupled with an increasing potential for LNG imports and US shale resource plays taking flight should put downward pressure on natural gas prices through the first half of 2009," analysts said.

Energy prices
The April contract for benchmark US gained $1.10 to $47.35/bbl Mar. 16 on NYMEX. The May contract increased $1.02 to $48.05/bbl. On the US spot market, WTI at Cushing, Okla., continued to trail the April futures contract, up $1.10 to $47.35/bbl. Heating oil for April delivery was up 1.58¢ to $1.21/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) increased 1.44¢ to $1.37/gal.

Natural gas for the same month lost 8.2¢ to $3.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 13.5¢ to $3.80/MMbtu.

In London, the expiring April IPE contract for North Sea Brent crude declined 95¢ to $43.98/bbl. Subsequent months gained and remained in contango through February 2010. Gas oil for April dropped $8.75 to $381.25/tonne.

The average price for OPEC's basket of 12 reference crudes fell $1.10 to $43.05 bbl on Mar. 16.

Contact Sam Fletcher at samf@ogjonline.com.

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