MARKET WATCH: Markets mixed but hopeful after Cyprus takes action

Crude prices were up Mar. 22 in mixed markets, but US natural gas prices in New York were down prior to a last-minute decision Mar. 25 in Cyprus to tap bank deposits that exceed the €100,000 insured level in order to secure a €10 billion bailout of its economy.

The decision came after the European Central Bank threatened to end crucial emergency assistance to Cypriot banks. Those banks have been closed more than a week as government officials scrambled to meet European Union conditions for the bailout. They earlier rejected an unpopular proposal to levy a 10% tax on all bank deposits and opted instead to penalize the biggest depositors through restructuring. Cypriot banks are expected to reopen Mar. 26.

The Cyprus crisis weighed on energy and other markets early last week before the Federal Reserve System reassured US traders the Fed will continue pumping money into efforts to stimulate the economy. The Standard & Poor’s 500 Index was down a marginal 0.3% for the week, but analysts in the Houston office of Raymond James & Associates Inc. reported, “The index was still just 8 points shy from its all-time high.” The front-month crude futures contract was essentially flat for the week while natural gas managed a 1% gain. The SIG Oil Exploration & Production Index and the Oil Service Index (OSX) traded down with the broader market. Crude, natural gas, and the equity market were up in early trading Mar. 25 due in part to a weaker dollar and decreased concern about demand for energy.

Analysts at Barclays Capital Inc. said the OSX was “under considerable pressure last week” due to a sell-off of risky assets because of the Cyprus crisis, some pullback in commodity prices, and “cautious” comments by large cap oil service companies about North American activity in the first quarter. However, they said, “We believe the concerns over North America, especially US land activity, are overblown, and we are buyers of the weakness. The US land rig count is moving higher, completion activity (more important for the large cap diversifieds) increased substantially in the first quarter, and the trajectory of activity is likely to improve in the second quarter as the seasonally slow first quarter weather issues dissipate.”

They noted, “The market seemed to shrug off a very sizeable deepwater Gulf of Mexico discovery and a successful lease sale and a modest increase to Petrobras’s 5-year upstream spending forecast.” Barclays Capital analysts said, “While we understand concerns about first quarter earnings expectations, we believe our estimates remain achievable and that oil service companies in general have been conservative in their guidance. Earnings beats would not surprise us.”

In other news, Raymond James analysts reported UK natural gas prices are near record highs—more than twice the price for US gas at Henry Hub in early trading Mar. 25—“amid severe shortage.” They said, “Here is the opposite sort of problem that US energy investors currently face: natural gas prices spiked to a 7-year high in the UK on Mar. 22 after a pipeline disruption during the coldest March in 50 years. Last week, a disruption on Interconnector UK Ltd.'s pipeline from Belgium cut supplies equal to roughly a quarter of the country's daily consumption, exacerbating a severe gas shortage, with inventories at the UK's largest storage facility at an all-time low as of [Mar. 23]. The UK now has only 2 days of supply in reserve, and supplies could run out by early April, depending on weather.”

Energy prices

The May contract for benchmark US light, sweet crudes climbed $1.26 to $93.71/bbl Mar. 22 on the New York Mercantile Exchange. The June contract rose $1.19 to $93.96/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.26 to $93.71/bbl.

Heating oil for April delivery declined 1.2¢ to $2.88/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.81¢ to $3.06/gal.

The April natural gas contract decreased 0.8¢ to $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., inched up 0.9¢ to $4.02/MMbtu.

In London, the May IPE contract for North Sea Brent advanced 19¢ to $107.66/bbl. Gas oil for April increased 25¢ to $898.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 56¢ to $105.13/bbl. So far this year, OPEC’s basket price has averaged $109.70/bbl compared with an average $109.45/bbl for all of 2012.

Contact Sam Fletcher at samf@ogjonline.com.