MARKET WATCH: Crude ends 3-day price rally

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 2 -- The price of US benchmark light, sweet crudes dipped below $45/bbl Feb. 27, ending a 3-day rally on the New York futures market as the Department of Commerce reported the US gross domestic product fell 6.2% during the last quarter of 2008.

It marked the largest decline in GDP since the first quarter of 1982 when it dropped 6.4%. For the latest period, economists were expected a decline of 3.8%.

"With no positive macrodata points in sight, this could be another long week," said analysts in the Houston office of Raymond James & Associates Inc. They reduced their oil price forecasts to $43/bbl from $60/bbl for 2009 and to $65/bbl from $80.bbl in 2010 "due to the severity of the global economic meltdown and bloated inventory levels at Cushing, [Okla.]," the key delivery point for US crude.

Raymond James analysts said, "Non-OPEC supply has peaked, while demand will eventually recover. If such a recovery occurs in 2010, our forecast will move much higher."

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, "There is a sense that the [oil] market might be starting to tighten."

Raymond James analysts said, "We are still extremely bearish on natural gas. We think the market will need to shut in 1 tcf of gas this summer, even after our assumption of a 65% peak-to-trough decline in the rig count." They lowered gas price estimates to $3.75/Mcf from $5/Mcf in 2009 and to $6/Mcf from $8/Mcf in 2010.

The Energy Information Administration reported total US natural gas production increased by 4.4 bcfd to 63.4 bcfd in December. "Natural gas rallied on the number, as it implied production was slightly down vs. last month. In December, we were 5 bcfd looser. Now, we are 7-8 bcfd looser. Storage numbers don't lie, and the combination of continued supply growth and declining demand have driven an increasingly bearish gas picture," Raymond James reported.

In New Orleans, Pritchard Capital Partners LLC analysts noted, "Residual fuel oil demand was lower than expected last week—a sign of potential switching to natural gas."

Meanwhile, snow covered Virginia over the weekend, and the storm is expected to dump as much as 14 in. of snow in places as it moves up the East Coast through Maryland and Washington, DC. It's expected to produce heavy snow as it pushes up from New York City to Boston on Mar. 3.

Energy prices
The April contract for benchmark US light, sweet crudes dropped 46¢ to $44.76/bbl on the New York Mercantile Exchange. The May contract lost 58¢ to $46.89/bbl. On the US spot market, West Texas Intermediate at Cushing was down 46¢ to $44.76/bbl. The expiring March contract for heating oil fell 2.82¢ to $1.27/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) dipped 1.97¢ to $1.28/gal.

Natural gas for April gained 12.1¢ to $4.20/MMbtu on NYMEX. Raymond James analysts said, "Natural gas prices rallied on some apparently not-so-bearish production data" from the EIA. "While we are running over 6 bcfd oversupplied, year-over-year onshore supply actually declined for the first time in 2 years," they said.

On the US spot market, gas at Henry Hub, La., was down 3¢ to $4.04/MMbtu.

In London, the April IPE contract for North Sea Brent crude lost 16¢ to $46.35/bbl. The March gas oil contract fell $13.75 to $386.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased by 35¢ to $43.30/bbl on Feb. 27. So far this year, OPEC's basket price has averaged $41.44/bbl.

Contact Sam Fletcher at [email protected].