MARKET WATCHCrude tops $61/bbl, reaches 7-week high in intraday trade

Energy prices continued to rally as the front-month crude contract blew past $61/bbl to a 7-week high in intraday trade in New York.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 23 -- Energy prices continued to rally as the front-month crude contract blew past $61/bbl to a 7-week high in intraday trade in New York following reports of a precipitous drop in US gasoline inventories and stronger defiance by Iran of the United Nations deadline to end its uranium enrichment program.

UN officials said Iran defied earlier sanctions for noncompliance and proceeded with the installation of a centrifuge and construction of a heavy-water reactor. "Over the next week, we may see some continued strength in oil prices as the situation ensues, with support from problems at some oil refineries," said analysts in the Houston office of Raymond James & Associates Inc.

Paul Horsnell at Barclays Capital Inc., London, said, "Oil prices have extended the rally off the lows to more than 20%. With a global tightening in progress combined with disappointing non-OPEC supply news, strong demand, and a worsening geopolitical background, we expect the push-up to continue further."

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The [previous $57-60/bbl trading] range on crude oil has now been broken, and with higher highs and lows [and a] higher close trading above the moving averages, the positive momentum is back into oil and should attract further momentum investment." With market resistance to crude prices of $60.80-61/bbl now broken, Jakob said, the next major level of resistance will be $63.80/bbl.

Horsnell said, "The latest US weekly data are again extremely strong, with product inventories falling by 7.6 million bbl relative to their 5-year average. Demand remains strong across the board, with distillate and total demand both running at all-time record levels."

The Energy Information Administration reported commercial US crude oil inventories jumped by 3.7 million bbl to 327.6 million bbl in the week ended Feb. 16 after dropping a total 1 million bbl over the 2 prior weeks. US gasoline stocks fell by 3.1 million bbl to 222.1 million bbl in the same week. Distillate fuel inventories dropped 5 million bbl to 128.3 million bbl (OGJ Online, Feb. 22, 2007).

"Gasoline inventories have continued to come back closer into bounds, while heating oil inventories are now below their 5-year average," Horsnell said. "With 2 months of draws still expected, heating oil inventories are likely to finish the season well below last year's level, and they stand a reasonable chance of finishing below the 5-year average."

EIA's weekly statistics "are showing that in terms of days of cover the whole US complex is now below last year," Jakob said. "While most of the focus is on gasoline and middle distillate, the days of cover for the same week in kerosene are the lowest since 1997, and stocks of residual fuel oil have been steadily drawing back to below last year."

Energy prices
The April contract for benchmark US light, sweet crudes traded at $59.61-$61.25/bbl before closing at $60.95/bbl, up by 88¢ for the day on the New York Mercantile Exchange. The May contract escalated by $1.16 to $62.05/bbl. On the US spot market, West Texas Intermediate in Cushing, Okla., inched up 3¢ to $59.56/bbl. Heating oil for March delivery gained 4.34¢ to $1.73/gal on NYMEX. The March contract for reformulated blendstock for oxygenate blending (RBOB) continued to rally, up 5.01¢ to $1.75/bbl.

The March natural gas contract increased by 8.1¢ to $7.73/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., slipped by 0.5¢ to $7.49/MMbtu. "In the natural gas markets, there is again some notable pressure on prices on forecasts of a faster-arriving spring," Raymond James analysts said.

In London, the April IPE contract for North Sea Brent crude gained $1.27 to $60.82/bbl. The March contract for gas oil increased by $8.25 to $525.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes escalated by $1.14 to $54.99/bbl on Feb. 22.

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