MARKET WATCH: Front-month crude rebounds above $41/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 6 -- The front-month crude contract rebounded above $41/bbl Feb. 5, wiping out losses from the previous trading session on the New York market as the price gap between West Texas Intermediate and North Sea Brent widened because of bulging US inventories.

The market also was driven by a Department of Energy report that stated US fuel demand increased 0.6% over the last 4 weeks and on expectations the US Senate will soon pass an economic stimulus bill, said analysts at Pritchard Capital Partners LLC, New Orleans. They cited a report by the United Nations' International Monetary Fund that the proposed economic stimulus plans among the world's 20 biggest developed and emerging economies may spur economic growth by as much as 1.3%.

Nevertheless, crude was down in premarket trading Feb. 6 amid talk that the Organization of Petroleum Exporting Countries will keep oil exports steady at a 5-year low over the next 4 weeks instead of agreeing to additional supply reductions, said analysts in the Houston office of Raymond James & Associates Inc.

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts noted main market oil inventories were essentially unchanged from November to December, with the excess supply also constant at 70 million bbl. "However, the true extent of the overhang is quite severely understated, with a further 60 million bbl of crude held in floating storage. Moreover, the excess in US oil stocks alone increased by a further 20 million bbl in January," they said.

"With economic activity continuing to decline, the market is waiting for evidence, in (falling) stocks data, to prove that OPEC cuts are now outpacing demand destruction. This is forestalling any rally in oil prices, but we remain of the view that the oil cartel is already doing enough on supply to rebalance the market," said KBC analysts.

Meanwhile, a financial assessment of EOG Resources Inc. by Pritchard Capital Partners described the Bakken and the Barnett "combo" oil play in Montague County, Tex., as the "two best oil plays in North America" and the "only two plays where economics work" at a crude price under $50/bbl on the New York market.

The analysts reported EOG's wells in the core of the Bakken play are still economic, but because of limited pipeline capacity out of its primary operating area, EOG has had to pay $22/bbl to truck its oil out. As a result, the company is looking at shutting half of its production from that play until an alternate solution is developed.

Natural gas prices were up 1% Feb. 5 after the Energy Information Administration reported the withdrawal of 195 bcf from US underground storage in the week ended Jan. 30 (OGJ Online, Feb. 5, 2009). That is the largest gas withdrawal so far this winter and was in-line with consensus estimates.

Meanwhile, there were reports from Nigeria that a service vessel was attacked by militants and that the wife of a former OPEC minister taken hostage.

Energy prices
The March contract for benchmark US bounced back by 85¢ to $41.17/bbl Feb. 5 on the New York Mercantile Exchange. The April contract gained $1.52 to $45.76/bbl. On the US spot market, WTI at Cushing, Okla., was up 85¢ to $41.17/bbl. Heating oil for March delivery increased 4.02¢ to $1.37/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) advanced 5.64¢ to $1.27/gal.

Natural gas for the same month gained 4.5¢ to $4.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 15.5¢ to $4.86/MMbtu.

In London, the March IPE contract for North Sea Brent crude rose $2.31 to $46.46/bbl. The February gas oil contract lost $4 to $418.50/tonne.

The average price for OPEC's basket of 12 reference crudes was up 41¢ to $42.05/bbl on Feb. 5.

Contact Sam Fletcher at [email protected].