MARKET WATCH: Prices hiked by funds rate reduction, ice storm

Energy prices rose Dec. 11 as the Federal Open Market Committee cut the benchmark federal funds rate by a quarter-point to 4.25% and an ice storm knocked out electrical power in Oklahoma.

Dec 12th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Dec. 12 -- Energy prices rose Dec. 11 as the Federal Open Market Committee cut the benchmark federal funds rate by a quarter-point to 4.25% and an ice storm knocked out electrical power in Oklahoma, shutting in key crude pipelines at the Cushing oil hub.

Reduction of the Federal Reserve rate generally was anticipated by traders and economists. The FOMC also trimmed the discount rate by a quarter-point to 4.75%.

"Crude was up on news of four crude oil pipelines and a storage terminal shut-in at the nation's most important oil hub at Cushing, Okla., as a severe ice storm knocked out power, leaving much of the state without power," said analysts in the Houston office of Raymond James & Associates Inc. Enbridge Inc. shut in each of its 125,000 b/d Ozark and Spearhead pipelines from Cushing to Illinois and Magellan Midstream Partners LP closed its 115,000 b/d Osage pipeline from Cushing to Kansas (OGJ Online, Dec. 11, 2007).

"The Osage pipeline and one storage terminal was able to resume operations early yesterday afternoon and the Ozark and Spearhead pipelines are expected to be up today, leaving the Seaway pipeline as the only line remaining out of service," Raymond James analysts reported Dec. 12. Seaway Crude Pipeline Co. operates the main pipeline artery for transporting imported crude from the Texas Gulf Coast to Cushing, a delivery point for the New York Mercantile Exchange Crude.

Crude prices again were climbing in early trading Dec. 12 on NYMEX "due to the lingering Cushing issues and expectations that today's inventory data will show a decrease in crude inventories," said Raymond James analysts. Premarket natural gas futures prices also were up on expectations the Northeast will experience slightly lower temperatures and higher demand in the near term. "Even with warmer-than-normal weather forecasted in the next 2 weeks, we still expect to reduce the year-over-year storage surplus over the next month," they said.

Energy prices
The January contract for benchmark US light, sweet crudes traded as high as $90.55/bbl Dec. 11 on NYMEX before closing at $90.02/bbl, up $2.16 for the day. The February contract climbed $2.15 to $89.92/bbl. On the US spot market, West Texas Intermediate was up $2.16 to $90.03/bbl. Heating oil for January gained 4.56¢ to $2.52/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) increased by 4.13¢ to $2.29/gal.

The January natural gas contract picked up 5.3¢ to $7.09/MMbtu. On the US spot market, gas at Henry Hub, La., escalated 11.5¢, also to $7.09/MMbtu.

In London, the January IPE contract for North Sea Brent crude gained $1.95 to $89.99/bbl. The December gas oil contract, however, lost $3.75 to $784.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased by 45¢ to $84.64/bbl on Dec. 11.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest