MARKET WATCH: March crude price rises ahead of holiday

After falling through five consecutive trading sessions to the lowest price of the year, the March contract for benchmark US crude shot up 10% Feb. 13 as traders adjusted positions ahead of the long weekend.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 16 -- After falling through five consecutive trading sessions to the lowest price of the year, the March contract for benchmark US crude shot up 10% Feb. 13 as traders adjusted positions ahead of the long weekend due to the US Presidents Day holiday Feb. 16.

Nevertheless, front-month West Texas Intermediate was down $2.66/bbl for the week while North Sea Brent lost $3.18/bbl in what Olivier Jakob at Petromatrix, Zug, Switzerland, as a "BUM" ("Big USO Mess") period. USO is the stock symbol for US Oil Fund LP, a domestic exchange-traded fund that tracks price movements of WTI on the New York futures market in comparison with spot market prices.

In recent weeks, US spot market prices have copied exactly to the daily futures market price that has fallen as crude storage approached maximum capacity at the primary delivery point at Cushing, Okla.

Crude storage at Cushing was up to 34.9 million bbl last week and is expected to test its estimated maximum capacity of 37-39 million bbl (OGJ Online, Feb. 13, 2009). That has resulted primarily from the steep contango of future monthly crude contracts that are priced progressively higher, making it profitable to store oil at today's prices in hopes of selling it for a higher price in the future.

Meanwhile, that supply buildup and negative effect on front-month crude prices in the New York market widened the price spread between WTI and the London-traded North Sea Brent to as much as $10/bbl last week. The increasing spread between the crudes over the past several weeks earlier prompted Paul Horsnell at Barclays Capital Inc., London, to conclude WTI is "about as useful as a chocolate oven-glove" in assessing world market conditions. He and other analysts say Brent is now a better yardstick for oil market prices (OGJ Online, Jan. 15, 2009).

Energy prices
The March contract for benchmark US light, sweet crudes shot up by $3.53 to $37.51/bbl Feb. 13, ending the latest of a long-running series of price drops on the New York Mercantile Exchange over the last 6 months. Crude contracts for other months through more than a year in the future posted losses, with the April contract down 20¢ to $41.97/bbl. But all remained in contango. On the US spot market, WTI at Cushing was up $3.53 to $37.51/bbl.

Heating oil for March delivery dropped 2.18¢ to $1.30/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) fell 5.2¢ to $1.21/gal.

Natural gas for the same month declined 3.3¢ to $4.45/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 9.5¢ to $4.60/MMbtu.

In London, the new front-month April IPE contract for Brent was down $1.22 to $44.81/bbl. The March gas oil contract dropped $5 to $410.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained 34¢ to $42.13/bbl on Feb. 13. So far this year, OPEC's basket price has averaged $41.83/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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