MARKET WATCH: Energy prices regain some of losses

Energy prices edged up Jan. 14, regaining some of their losses from the previous session in the New York market, with the front-month crude contract still above $91/bbl.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 17 -- Energy prices edged up Jan. 14, regaining some of their losses from the previous session in the New York market, with the front-month crude contract still above $91/bbl.

Markets are expected to be relatively quiet today because of the US holiday celebrating civil rights leader Martin Luther King Jr.

Oil was down in early trading Jan. 14 “on the back of bearish sentiments carried over” from the previous session on disappointing employment numbers and another increase in the bank reserve ratio in China, said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “However, the oil market recouped the loss in the afternoon and ended the day slightly higher amid better-than-expected US industrial production numbers,” he said.

The shut-down of the Trans-Alaska Pipeline System helped front-month West Texas Intermediate climb $3.51/bbl last week. That pipeline was scheduled to restart over the weekend, but startup was delayed until Jan. 17. “It is unlikely to have much impact to the physical market, but it might add to the bullish sentiments, nevertheless,” Zhang said.

He said, “Front-month Brent increased $5.35/bbl for the week, giving a widest WTI-Brent spread since February 2009.”

Analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC in Surrey, UK, noted Brent last week came within pocket-change of the $100/bbl mark last seen in October 2008. “The front-month February futures contract, which expires today…currently stands just above $98/bbl. Meanwhile, US benchmark grade WTI has continued to trail the North Sea grade by as much as $8/bbl despite historically having commanded a premium to its transatlantic counterpart,” they said.

Since the physical [cash] market remains at a discount to February futures “suggests that it is not a physical squeeze that is driving the market. Rather, fund flows into Brent as a result of commodity index reweightings and a tightening of the market overall appears to be behind the surge,” said KBC analysts. “High open interest on futures ahead of the expiry has led to fears over the last week that the emergent backwardation would balloon as traders sought to close out and roll forward their positions. The February–March futures spread widened to 85-90¢/bbl in favor of the prompt month ahead of the expiry, and currently stands at $1/bbl,” they said.

OPEC outlook
In its monthly oil report Jan. 17, the Organization of Petroleum Exporting Countries increased its estimate of world economic growth in 2010 to 4.5% from 4.3% previously and raised its estimate of 2011 growth to 3.9% from 3.8%.

OPEC also lifted its estimate of world oil demand by 1.6 million b/d in 2010, following an upward revision of 130,000 b/d since the last report. It said extra consumption of heating and fuel oil boosted demand in December, more than offsetting weak demand for transport fuels.

Non-OPEC oil supply growth in 2010 is estimated at 1.1 million b/d in a slight upward revision from the previous number. Non-OPEC supply this year is expected to increase by 400,000 b/d to 52.9 million b/d, primarily due to increased production in the US, China, and Russia.

Demand for OPEC crude in 2010 is estimated at 29 million b/d, up 100,000 b/d from the previous monthly report. With that revision, 2011 demand for OPEC crude is estimated at 29.4 million b/d, up 200,000 b/d from the previous estimate.

Energy prices
The February contract for benchmark US light, sweet crudes increased 14¢ to $91.54/bbl Jan. 14 on the New York Mercantile Exchange. The March contract gained 27¢ to $92.57/bbl.

On the US spot market, WTI at Cushing, Okla., was up 14¢ to $91.54/bbl. Heating oil for February delivery rose 3.61¢ to $2.65/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month climbed 4.87¢ to $2.49/gal.

The February natural gas contract regained 7.3¢ $4.48/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 8.5¢ to $4.41/MMbtu.

In London, the February IPE contract for North Sea Brent crude was up 62¢ to $98.68/bbl—“the highest level since September 2008,” Zhang said. Gas oil for February increased 50¢ to $811/tonne.

The average price for OPEC’s basket of 12 reference crudes inched up 8¢ to $94.4/bbl. Over the first few days of 2011, OPEC’s basket price has averaged $92.14/bbl, up from $77.45/bbl for all of 2010 and $61.06/bbl in 2009.

Contact Sam Fletcher at samf@ogjonline.com.

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