MARKET WATCHWarmer weather forecasts undercut energy prices

Energy prices generally fell Feb. 20, giving back most of the technical gains of Feb. 16 prior to the long holiday weekend in the US, as mixed forecasts of warmer weather again convinced traders that winter is nearing an end.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 21 -- Energy prices generally fell Feb. 20, giving back most of the technical gains of Feb. 16 prior to the long holiday weekend in the US, as mixed forecasts of warmer weather again convinced traders that winter is nearing an end.

The Feb. 20 expiration of the March contract for benchmark light, sweet crudes helped undercut oil prices on the New York Mercantile Exchange. But prices for the front-month contract were "still unable to break out of the $57-60/bbl range that has been holding for 3 weeks now," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

"While the phasing out of winter continues to pressure heating oil, gasoline remains well supported and the only component of the energy complex in a positive momentum. Gasoline has taken over from heating oil in maintaining a firm 3-2-1 refinery margin," Jakob said. Meanwhile, he said, the crude market "remains directionless."

Analysts in the Houston office of Raymond James & Associates Inc. also indicated a possible loss of direction in a market that "may not be considering" that BP PLC over the weekend shut down production from its 40,000 b/d Northstar field in Alaska to repair "a pinhole leak" in the pipeline delivering oil and gas from the island field to the mainland.

Raymond James analysts also noted that Nigerian militant rebels kidnapped three European workers over the weekend and threatened to widen the focus of their attacks on oil facilities in the Niger Delta, prompting the US consulate in Nigeria to issue warnings to US citizens in that country. Such attacks last year forced Royal Dutch Shell PLC to halt production of 500,000 b/d, about a quarter of Nigeria's oil output.

Meanwhile, Iran's Revolutionary Guards began war games prior to the United Nation's deadline this week for Iran to stop uranium enrichments or else face more stringent sanctions.

In other news, Valero Energy Corp. has not yet said when production would resume at its 158,000 b/d McKee refinery in Sunray, Tex. That facility was shut down Feb. 16 when a fire in a deasphalter unit threatened four adjacent spherical propane tanks.

Energy prices
The expiring March contract for benchmark US crudes traded at $57.32-$59.25/bbl before closing at $58.07/bbl, down $1.32 for the day on NYMEX. The April contact lost $1.01 to $58.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.33 to $58.08/bbl. Heating oil for March delivery dropped 2.84¢ to $1.65/gal. The March contract for reformulated blend stock for oxygenate blending (RBOB) inched up by 0.38¢ but its closing price was virtually unchanged at $1.65/gal.

The March natural gas contract continued to climb, up 8.2¢ to $7.59/MMbtu on NYMEX as traders covered short positions on mixed weather forecasts. "Some private forecasters are calling for above-normal temperatures to reach the Northeast and Midwest by March and remain warm. But a government forecasts and other private forecasters call for temperatures to remain colder than normal in March in the Northeast," said analysts at Enerfax Daily. On the US spot market, natural gas at Henry Hub, La., fell by $1.29 to $7.36/MMbtu.

In London, the April IPE contract for North Sea Brent crude lost 16¢ to $57.81/bbl. The March gas oil contract dropped $12 to $502.25/tonne

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined by 43¢ to $53.20/bbl on Feb. 20.

Contact Sam Fletcher at samf@ogjonline.com.

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