Market watch: Energy prices rise on Strategic Petroleum Reserve contract

Energy prices, particularly crude oil, rose on the New York Mercantile Exchange and the London-based International Petroleum Exchange Monday, partly on anticipation of the removal of some crude from the market for delivery to the US Strategic Petroleum Reserve.

Feb. 12, 2002

2 min read

By the OGJ Online Staff

HOUSTON, Feb. 12 -- Energy prices, particularly crude oil, rose on the New York Mercantile Exchange and the London-based International Petroleum Exchange Monday, partly on anticipation of the removal of some crude from the market for delivery to the US Strategic Petroleum Reserve.

The March NYMEX contract for light, sweet crude rose $1.15/bbl to close at $21.41/bbl, while the April contract rose $1.19 to close at $21.81/bbl.

The US Department of Energy has selected Royal Dutch/Shell Group-Saudi Aramco joint venture Equiva to deliver 18.6 million bbl of crude to the Strategic Petroleum Reserve to replace an equivalent amount of royalty in kind oil.

Under the contract, Equiva will begin taking royalty oil on Apr. 1. Deliveries to the Strategic Petroleum Reserve generally will occur in the month following receipt of the royalty oil, and all deliveries are expected to be completed by May 2003.

The contract with Equiva is the first of several anticipated exchanges of royalty oil that are expected to fill the SPR to capacity as early as 2005.

Other NYMEX energy commodity prices received a boost as well. The March natural gas price rose 9.5¢ to close at $2.286/Mcf.

Engineering, architectural, and consulting services group C.H. Guernsey & Co., Oklahoma City, said that after 3 weeks of relatively small natural gas storage drawdowns, last week's cold weather produced withdrawals much higher than the 5-year US average, according to its gas models.

The models estimated a net withdrawal of gas in storage of 133-145 bcf last week with 89 bcf coming from eastern storage alone. The net withdrawal estimated by the American Gas Association was 95 bcf for the same period last year.

Despite last week's drawdown, the gas in storage is still nearly 45% above the 5-year average. "The high gas-in-storage levels are still the major market influence, holding down current and even forward prices for summer gas," said Guernsey Vice-Pres. Donald Murry.

The March contract for home heating oil rose 2.94¢ to settle at 56.28¢/gal, while gasoline for the same month rose 3.23¢ to settle at 62¢/gal.

On the IPE, the March contract for Brent crude rose $1.72 to settle at $21.44/bbl. The market high was $21.71 and the low was $19.50.

Also on the IPE, the March contract for natural gas rose 9¢ to the equivalent of $2.67/Mcf.