MARKET WATCH: Troubled economy pulls down oil prices

Prices for crude and petroleum products fell Feb. 23 on the New York Market on traders' perceptions that demand is still declining faster than oil supplies.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 24 -- Prices for crude and petroleum products fell Feb. 23 on the New York Market on traders' perceptions that demand is still declining faster than oil supplies.

In New Orleans, analysts at Pritchard Capital Partners LLC noted crude prices rallied in early trading Feb. 23 on reports of the Organization of Petroleum Exporting Countries' better-than-expected compliance with its promised production cuts and the likelihood that the group will further reduce its output in March. But the market later "was dragged down by $60 billion of additional losses by government-owned American International Group Inc. and a fresh 12-year low in the S&P 500 index," they reported.

OPEC's crude exports are projected to average 25.3 million b/d in February, down from 26.3 million b/d in January and nearing the group's official quota of 24.8 million b/d.

"The report of high OPEC compliance will now provide more options for OPEC at its next meeting," said Olivier Jakob at Petromatrix, Zug, Switzerland. "OPEC does not have room do make another 4 million b/d cut and a lower cut in the region of 1 million b/d would have been useless if OPEC was reported at a 50% compliance."

However, he said, "At a compliance level above 90% it can now afford to make an additional 'fine-tuning' cut, making this dependent on the price levels at the time of the meeting (we believe the number to watch is $40/bbl on the OPEC Basket, currently at $39.53/bbl)."

OPEC's compliance "comes at a time when some reports are indicating better-than-expected demand," Jakob said.

Energy prices
The new front-month April contract for benchmark US light, sweet crudes fell $1.59 to $38.44/bbl Feb. 23 on the New York Mercantile Exchange. The May contract dropped 90¢ to $41.27/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., has not caught up with the April futures contract but was down $1.35 to $37.59/bbl. Heating oil for March delivery lost 2.13¢ to $1.18/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) declined 3.13¢ to $1.04/gal.

Natural gas for the same month gained 9.1¢ to $4.10/MMbtu on NYMEX because of forecasts of colder weather through the Midwest and into the Northeast by Feb. 28 through Mar. 4. On the US spot market, gas at Henry Hub, La., was up 5.5¢ to $4.24/MMbtu.

In London, the April IPE contract for North Sea Brent lost 90¢ to $40.99/bbl. The March contract for gas oil gained $11.50 to $375.50/tonne.

The average price for OPEC's basket of 12 benchmark crudes increased 36¢ to $39.53/bbl on Feb. 23.

Contact Sam Fletcher at samf@ogjonline.com.

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