MARKET WATCH: Fluctuating crude prices remain above $40/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 9 -- Energy prices continued to seesaw Feb. 6 with the front-month benchmark crude contract falling as low as $38.60/bbl before climbing back above the apparent $40/bbl floor but still down for the day on the New York market.

Oil futures fell following a US Department of Labor report of 598,000 nonfarm jobs lost in January—the largest layoff in a single month since December 1974. The unemployment rate hit 7.6%, which was the highest level since 1982. However, a weaker US dollar and hope that Congress will soon pass an economic stimulus plan turned the crude market around at midday to climb above $40/bbl by the end of the session.

Oil prices have declined 9.9% so far this year and are down 54% from year-ago levels, said analysts at Pritchard Capital Partners LLC, New Orleans.

Natural gas prices continued climbing Feb. 6 in the first 3-day rally since early November. Gas prices have dropped 16% so far this year and are down 65% from the 2008 high.

An informal survey of 60 exploration and production and oil field service executives at the recent annual North American Prospect Expo (NAPE) in Houston confirmed that the industry is in a survival mode, said analysts in the Houston office of Raymond James & Associates Inc. Analysts found "a profound sense of near-term caution with E&P price expectations well below current strip pricing."

They said, "The survey suggested that industry insiders are expecting 2009 oil and gas prices to average roughly 20% lower than Wall Street expectations—the first year executives have been more bearish relative to the Street since we have started this survey. Already, budgets and costs are coming down, and both are likely to continue declining through 2009. Producers are now far more focused on rates of return, especially in the face of an oversupplied gas market and potential forced production shut-ins this summer."

Raymond James analysts noted, "While the mergers and acquisitions market has been hamstrung by the credit crisis, many of the larger E&P companies with healthy balance sheets and free cash flow potential will have opportunities to rake in attractive assets at 'fire sale' prices."

Survey respondents' guesses at energy prices for 2009 averaged $4.84/Mcf for natural gas, 25% below the Wall Street consensus reported by Bloomberg news services and $48.28/bbl for oil, 17% below that consensus. "Our forecast of $60/bbl is higher than the group's average oil forecast; however, as we have stated several times, our confidence level in a global economic rebound in the back half of this year remains low," the analysts said. The Raymond James gas price forecast for 2009 is $5/Mcf.

Pritchard Capital Partners noted E&P equity stock prices rose 9% last week as two major producers, EOG Resources Inc. and Devon Energy Corp., announced plans to scale back capital spending in 2009. "As others announce plans to align capital expenditures with cash flows based on $5-6/Mcf [New York market] prices, we think investors will continue to gain confidence," those analysts said.

They reported refiners in China are increasing runs for first time since October, "suggesting a possible pick-up in demand that may be draining record-high inventories." They said 12 major plants accounting for more than a third of China's refining capacity plan to boost runs 5% to 2.37 million b/d of crude in February after cutting to a 2½–year low at yearend 2008.

Energy prices
The March contract for benchmark US light, sweet crudes lost $1 to $40.17/bbl Feb.6 on the New York Mercantile Exchange. The April contract, however, gained 39¢ to reach $46.15/bbl. Prices for all subsequent crude contracts increased and remained in contango through at least June 2010. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1 to $40.17/bbl. Heating oil for March declined by 0.74¢ to $1.36/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) dropped 2.41¢ to $1.25/gal.

Natural gas for the same month gained 13.2¢ to $4.77/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 13.5¢ to $4.72/MMbtu.

In London, the March IPE contract for North Sea Brent crude lost 25¢ to $46.21/bbl. Gas oil for February was down $4.25 to $414.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed by $1.25 to $43.30/bbl on Feb. 6. So far this year, OPEC's basket price has averaged $41.66/bbl.

Contact Sam Fletcher at [email protected].