MARKET WATCH: Declining storage boosts natural gas prices

A faster-than-expected decline in US natural gas storage triggered a 3.6% price jump for the front-month contract Mar. 14 in the New York futures market while crude increased 0.6% from a marginal decline in the previous session.

The Energy Information Administration reported the withdrawal of 145 bcf of natural gas from US underground storage during the week ended Mar. 8, exceeding Wall Street’s consensus for a 137 bcf pull. That left 1.938 tcf of working gas in storage, down 440 bcf from the year-ago level but 198 bcf above the 5-year average (OGJ Online, Mar. 14, 2013).

Excluding weather-related demand, there was 3.6 bcfd less natural gas added to storage than the comparable week a year ago, with the market averaging 2 bcfd tighter over the past 4 weeks. “With the colder weather leading to freeze-offs this winter and higher demand for gas, the gas markets have begun to tighten, increasing the year-over-year deficit. In addition, with some nuclear outages, this has led to some incremental demand for gas,” said analysts in the Houston office of Raymond James & Associates Inc.

Benchmark North Sea Brent and West Texas Intermediate “were more in sync yesterday, although this time they both moved up and Brent was the outperformer,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “The closing Brent-WTI spread widened marginally, by 39¢/bbl.”

He said, “Oil markets received some support overnight from geopolitical concerns. In an interview with Israeli television, President Barack Obama stressed that while Iran might be ‘over a year or so’ away from building its own nuclear weapons, he would not want to ‘cut it too close’ and that the US would ‘pursue all avenues to make sure that that does not happen,’ implying that the US was ready to act militarily if diplomatic endeavors (such as sanctions) do not force a satisfactory response from Iran. This lift to oil prices should prove temporary, unless there is a perceived escalation in tensions or any new headlines on the issue. Nevertheless, with no long-term resolution in sight, news on Iran and its nuclear enrichment program will keep oil markets on their toes for some time still.”

In other news, the US Department of Labor reported the seasonally adjusted consumer price index increased 0.7% in February, the largest monthly gain since June 2009. That was primarily the result of a 9.1% escalation in pump prices for gasoline, officials said. But since then, pump prices have declined, they noted. Total energy costs were up 5.4% in February, with gains in natural gas and heating oil as well.

Energy prices

The April contract for benchmark US light, sweet crudes gained 51¢ to $93.03/bbl Mar. 14 on the New York Mercantile Exchange. The May contract increased 50¢ to $93.38/bbl. On the US spot market, WTI at Cushing, Okla., was up 51¢ to $93.03/bbl.

Heating oil for April delivery regained 0.53¢ to $2.93/gal on NYMEX. Reformulated stock for oxygenate blending for the same month took back 0.1¢ but remained essentially unchanged at a rounded $3.14/gal.

The April natural gas contract jumped 13.2¢ to $3.81/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 8.9¢, also closing at a rounded $3.81/MMbtu.

In London, the April IPE contract for Brent was up 90¢ to $109.42/bbl after four consecutive sessions of losses. Gas oil for April continued declining, down $2.75 to $909.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped 17¢ to $105.88/bbl.

Contact Sam Fletcher at samf@ogjonline.com.