MARKET WATCH: Crude price reaches above $47/bbl

The front-month contract for benchmark US crudes climbed to a 2-month high above $47/bbl Mar. 9 on the New York market amid speculation that OPEC will opt to reduce production at its Mar. 15 meeting.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 10 -- The front-month contract for benchmark US crudes continued climbing to a 2-month high above $47/bbl Mar. 9 on the New York market amid speculation that the Organization of Petroleum Exporting Countries will reduce production again at its Mar. 15 meeting.

"Oil rose 3.4% on some developing political tension between the US and China," said analysts in the Houston office of Raymond James & Associates Inc. US officials complained five Chinese ships harassed an unarmed US Navy surveillance ship by maneuvering close to the vessel in international waters in the South China Sea.

Royal Dutch Shell PLC declared force majeure Mar. 9 on crude shipments from its Forcados oil fields in Nigeria. More than a week ago, explosions punctured in three places the 24-in. trans-Escravos oil pipeline that transports crude from the Forcados fields to the export terminal (OGJ Online, Mar. 3, 2009). A Nigerian official said as much as 70,000 b/d of crude production was shut in as a result.

"While supply looks to be tighter, demand remains a wildcard as we enter the seasonally stronger spring driving season," said analysts at Pritchard Capital Partners LLC, New Orleans. Contango trade seems to be fading as the price spread between the front-month futures contract for benchmark US crude and its 12-month strip has narrowed below $6/bbl, down $15/bbl from 2 months ago, they said.

Raymond James analysts noted the continued decline in natural gas prices, down 2% Mar. 9. "The trend looks to continue [Mar. 10] with oil trading up premarket and gas prices trading down," they said.

Gas futures prices are down 31% so far this year and are 72% below the July 2 high of $13.69/Mcf, said Pritchard Capital Partners. "Prices are languishing as the end of the heating demand season quickly approaches, while first quarter US production is 3 bcfd above year-ago levels and LNG import growth may surpass 20% in the first quarter," they said.

In other news, Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Saudi Arabia has made the road to Vienna [site of the pending OPEC meeting] a little trickier by hinting to the local press that they want to see higher compliance [with the group's current production quotas] before imposing new cuts." Iran and Venezuela reportedly were still producing above their quotas in January.

Jakob said, "If the [Saudi] king really wants to have $75/bbl oil, this would require an additional cut, but at this stage it does seem that Vienna will be more of a debate than Oran was." At their Dec. 17 meeting in Oran, Algeria, OPEC members bundled previously announced cuts of 500,000 b/d in September and 1.5 million b/d in October with a new cut of 2.2 million b/d for a total reduction of 4.2 million b/d effective Jan. 1 (OGJ Online, Dec. 19, 2008).

Meanwhile, the US dollar strengthened against the eruo, the UK pound, and the yen after the World Bank said it expects global economic growth to contract below zero this year for the first time since World War II. The head of the International Monetary Fund voiced the same conclusion in a Mar. 10 address to African political and financial representatives in Tarzania. "The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes," he said.

Energy prices
The April contract for benchmark US sweet, light crudes rose as high as $48.83/bbl in intraday trading Mar. 9 before closing at a 2-month high of $47.07/bbl on the New York Mercantile Exchange. The May contract increased 34¢ to $48.06/bbl. Contracts for subsequent months posted losses but remain in contango through at least April 2010. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.55 to $47.07/bbl. Heating oil for April dropped 1.4¢ to 41.22/gal on NYMEX. The April contract for reformulated blend stock for oxygenate blending (RBOB) inched up 0.29¢ to $1.34/gal.

Natural gas for the same month dropped 8¢ to $3.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also lost 8¢ and also finished at $3.87/MMbtu. It marked the second consecutive session that the front-month gas futures contract and spot market closed at the same price.

In London, the April IPE contract for North Sea Brent crude lost 72¢ to $44.13/bbl. However, the March gas oil contract escalated by $17.50 to $382.25/tonne.

The average price for OPEC's basket of 12 reference crudes gained 99¢ to $44.14/bbl on Mar. 9.

Contact Sam Fletcher at samf@ogjonline.com.

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