MARKET WATCHEnergy prices fall for 3rd consecutive session

March 13, 2007
Energy prices continued to fall for the third consecutive session Mar. 12, with the front-month contract for benchmark US crudes dropping below $60/bbl in the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 13 -- Energy prices continued to fall for the third consecutive session Mar. 12, with the front-month contract for benchmark US crudes dropping below $60/bbl in the New York market.

However, some analysts are expecting at least a modest recovery after the International Energy Agency said Mar. 13 that oil stockpiles among member countries of the Organization for Economic Cooperation and Development could experience the largest first-quarter decline in 10 years because of increased US demand during February and supply cuts by the Organization of Petroleum Exporting Countries.

"With seasonal refinery maintenance coming to a close, a clearer picture regarding the effects of the OPEC cuts should materialize, while many are currently questioning whether the cartel took too much oil off the market," said analysts in the Houston office of Raymond James & Associates Inc. Meanwhile, they said, "Natural gas prices are stabilizing after trending downward the past four sessions," with forecasts now of "a slight reemergence of colder-than-normal weather in the northeastern US."

IEA kept its 2007 crude demand growth forecast at 1.55 million b/d, or 1.8%, "noting that US consumption growth remains robust while milder-than-normal temperatures have led to significant reductions in Europe and Asia Pacific," said Jacques Rousseau, senior energy analyst at Friedman, Billings, Ramsey Group Inc., Arlington, Va. "In total, the IEA expects OECD crude demand to increase by only 0.8% in 2007, while non-OECD consumption should rise by a healthy 3.3%," he said.

IEA maintained its 2007 non-OPEC supply growth forecast at 1.1 million b/d (2.2%), "with downward revisions in North America, Latin America, and Kazakhstan being offset by upward revisions to China, Russia, and Malaysia," Rousseau said. "Following weak global growth in 2005 and early 2006, Russia, Azerbaijan, Brazil, Sudan, Canada, and Australia are expected to be the main growth drivers this year," he reported.

IEA estimates OPEC will need to produce 30.7-31.6 million b/d to balance the 2007 market. Total OPEC production averaged 30.2 million b/d in February, marking "the seventh straight month of reduced supply from the OPEC-10 (excluding Iraq and Angola), which produced 26.8 million b/d, or roughly 1 million b/d below last September," said Rousseau. OPEC Ministers are to meet Mar. 15 in Vienna but no additional reduction of the group's production is anticipated.

Energy prices
The April contract for benchmark US light, sweet crudes fell by $1.14 to $58.91/bbl Mar. 12 on the New York Mercantile Exchange. The May contract lost $1 to $60.77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.14 to $58.92/bbl. The heating oil contract for April dipped by 2.99¢ to $1.68/gal. The April contract for reformulated blend stock for oxygenate blending (RBOB) inched up by 0.84¢ to $1.91/gal, however.

The April natural gas contract dropped 17.1¢ to $6.91/MMbtu. On the US spot market, natural gas at Henry Hub, La., was down 22.5¢ to $6.81/MMbtu.

In London, the April IPE contract for North Sea Brent crude dropped 39¢ to $60.74/bbl. March gas oil was unchanged at $536.25/tonne, however.

The average price for OPEC's basket of 11 benchmark crudes fell 93¢ to $57.27/bbl on Mar. 12.

Contact Sam Fletcher at [email protected].