MARKET WATCH: Air strikes in Libya boost oil prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 22 -- Allied air strikes in Libya lifted the front-month crude contract price by 1.3% Mar. 21 in the New York market on expectations that increased military action will prolong disruptions of oil supplies from that country.

Energy stocks helped lead the equity market rally on rising oil prices. Natural gas, however, “may have been exhausted from its 9% run [in] the last week and a half: the typically volatile commodity remained comfortable around the $4.20[/MMbtu] level and ended the day down a mere 0.2%,” said analysts in the Houston office of Raymond James & Associates Inc. Oil and gas prices were reported higher in early trading Mar. 22.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Daily trading volume in crude oil futures was very low [on Mar. 21]. On ICE, West Texas Intermediate volume was at the lowest level of the year, while on ICE Brent or WTI [in New York] volume was only lower on the first [trading] day of the year, Jan. 3. Volume was down largely because many US traders attended the annual National Petrochemical & Refiners Association convention in San Antonio.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “The gas oil crack rallied strongly last week in the wake of Japan’s disaster…. Japan is a net exporter for gas oil and diesel; it had an average export volume of 200,000 b/d in 2010. It’s likely that the gasoil crack rally last week was fuelled by short-covering from Japan’s traditional export markets.”

However, he said, “The fundamentals for gas oil remain weak with high inventories and diminishing seasonal demand. Therefore, the recent rally is not likely to run much further. Although the reduced refining capacity in Japan will support refinery margins and product cracks in general, we don’t see significant upside in the margin and cracks. Instead, we view it as a hedging opportunity for margin and cracks.”

Zhang said, “Japan appeared to have made significant progress during the past few days in the battle to gain control over the nuclear reactors at Fukushima. Meanwhile, JX Energy’s 270,000 b/d Negashi Refinery has resumed operation. It appears only two refineries, totaling 360,000 b/d, are likely to remain shut for a prolonged period. In addition, those Japanese refineries unaffected by the earthquake have been increasing their throughput.”

Energy prices
The April contract for benchmark US sweet, light crudes traded above $103/bbl on Mar. 21 before closing at $102.33/bbl, up $1.26 for the day on the New York Mercantile Exchange. The May contract gained $1.24 to $103.09/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.26 to $102.33/bbl.

Heating oil for April delivery increased 2.82¢ to $3.05/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month escalated 4.8¢ to $3/gal.

The April natural gas contract dipped 0.7¢ to $4.16/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., also advanced 4.8¢, to $3.99/MMbtu.

In London, the May IPE contract for North Sea Brent crude was up $1.03 to $114.96/bbl. Gas oil for April gained $6 to $978.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 44¢ to $110.10/bbl.

Contact Sam Fletcher at [email protected].