MARKET WATCH: Energy prices continue to climb in uneasy markets

The front-month gasoline contract price shot up Feb. 26, and crude hit a 1-month high on the New York futures market, driven by an apparent jump in demand.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 27 -- The front-month gasoline contract price shot up Feb. 26, and crude hit a 1-month high on the New York futures market, driven by an apparent jump in demand.

"Crude oil continued its bullish move yesterday climbing 6%, but appears to have snapped its 3-day rally (18%) and is trading lower premarket," said analysts Feb. 27 in the Houston office of Raymond James & Associates Inc.

In New Orleans, analysts at Pritchard Capital Partners LLC said, "Crude rose across the curve, but front months saw the biggest rise as the contango spread narrowed. The spread between April and October crude is now $5.50/bbl and the spread 1 year out is $10/bbl. Spread still encourages the storage trade, but profit margins are narrowing as the spread is down from $15/bbl seen in January."

Members of the Organization of Petroleum Exporting Countries "remain adamant about compliance of supply cuts and will likely cut production quotas further next month," said Raymond James analysts. However, they said, "The biggest driver remains the economic uncertainty and its effect on demand."

In a separate report, Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "In our view, additional OPEC cuts and more convincing signs of an economic upturn are required to stabilize oil prices. Since we expect the G7 [industrialized nations—Canada, France, Germany, Italy, Japan, UK, and US] will require additional fiscal stimulus packages to support growth, we remain skeptical of near-term crude oil price rallies."

The Energy Information Administration said gasoline stocks dropped 3.4 million bbl to 215.3 million bbl in the week ended Feb. 20. The consensus among Wall Street analysts was for virtually no change. Commercial US crude inventories increased just 700,000 bbl to 351.3 million bbl in the same period, well below the 1.3 million bbl gain that analysts expected (OGJ Online, Feb. 25, 2009).

Energy prices
The April contract for benchmark US light, sweet crudes climbed $2.72 to $45.22/bbl Feb. 26 on the New York Mercantile Exchange. The May contract gained $2.81 to $47.47/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was again tracking the front-month crude futures price, up $2.72 to $45.22/bbl. Heating oil for March delivery increased 5.64¢ to $1.29/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) bumped up 13.37¢ to $1.30/gal on hopes of renewed demand by US motorists.

The new front-month April contract for natural gas gained 4.8¢ to $4.08/MMbtu on NYMEX. "Prices finished the day up slightly despite another bearish EIA storage withdrawal of only 101 bcf," said Raymond James analysts. On the US spot market, gas at Henry Hub, La., dropped 14.5¢ to $4.07/MMbtu.

Deutsche Bank's Sieminski said, "We believe high gas storage projections may crush gas prices further and potentially low enough to reduce the gas rig count further to curb supplies and encourage gas to be shut in."

In London, the April IPE contract for North Sea Brent crude was up $2.22 to $46.51/bbl. Gas oil for March gained $23.50 to $400.25/tonne.

The average price for OPEC's basket of 12 reference crudes increased $2.45 to $42.95/bbl on Feb. 26.

Contact Sam Fletcher at samf@ogjonline.com.

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