MARKET WATCH: Fear of nuclear-armed Iran jolts oil prices

Energy prices jumped with crude up 3.6% on the New York market following a warning by Secretary of Defense Leon Panetta that Iran could complete a nuclear weapon within a year.

Panetta reiterated Dec. 19 that US policy opposes nuclear arms for Iran and is open to any action to prevent that country from obtaining a nuclear-strike capability. Pentagon officials later said Panetta’s assertion assumed an aggressive timeline and actions not yet taken by Iran.

Meanwhile, the broader market rallied 3% following a Commerce Department report of a 9.3% increase in new housing construction in November, the highest level since April 2010. Commerce officials attributed the rise to an unexpected surge in construction of new apartments. They claim each new home built produces three jobs and $90,000 in taxes.

Analysts in the Houston office of Raymond James & Associates Inc. reported, “Natural gas edged higher on indications of cooler weather ahead.”

Olivier Jakob at Petromatrix in Zug, Switzerland, described the market surge as “the much awaited Santa Claus rally in US equities.”

“The Standard & Poor’s 500 Index is now [down] only 1.3% for the year and only needs a little more help to finish the year at least not in the red,” Jakob said. “Officially, the close-to-3% rally in the S&P 500 is not due to window dressing but to ‘much better’ numbers on housing starts. Those have, however, still a long way to go.”

He noted home sales are “going to be difficult to interpret” given that the National Association of Realtors said it double-counted some numbers.

Jakob said, “Further Christmas rallies should not be excluded but given that crude oil is still something that you need to transform into products, our main focus as crude oil rallies is on the ICE gas oil crack. ICE gas oil has not been able to follow the strength of crude oil, and given that the gas oil crack is the main differential providing some return to refineries, if it continues its current declining trend then we should see slower crude oil buying from refineries.”

US inventories

The Energy Information Administration said Dec. 21 commercial US crude inventories fell 10.6 million bbl to 323.6 million bbl in the week ended Dec. 16, far surpassing Wall Street’s consensus for a 2.1 million bbl decline. Gasoline stocks decreased 400,000 bbl to 218.4 million barrels in the same period, opposite expectations of a 1.5 million bbl gain. Finished gasoline inventories increased while blending components decreased. Distillate fuel inventories dropped 2.4 million bbl to 139.1 million bbl, beyond the market outlook for an 800,000 bbl decline.

Crude inventory draws on the US Gulf Coast at the end of the year “are the norm rather than the exception and are followed by stock builds in January and February,” said Jakob. “Furthermore we need to keep in mind that the Houston Ship Channel was closed last week due to fog (54 ships waiting outside the channel on Dec. 15).” He also reported, “The MasterCard [Spending Pulse] report on gasoline sales at the pump does not show any change of trend: sales were down 4.4% vs. the same 2010 week, and the 4-week average is down 4.2%.”

Imports of crude into the US dropped 741,000 b/d to 7.6 million b/d last week. In the 4 weeks through Dec. 16, crude imports averaged 8.6 million b/d, up by 117,000 b/d from the comparable period in 2010. Gasoline imports last week averaged 601,000 b/d while distillate fuel imports averaged 128,000 b/d.

The input of crude into US refineries declined 53,000 b/d to 14.6 million b/d last week with units operating at 84.9% of capacity. Gasoline production decreased to 9.4 million b/d, but distillate fuel production increased to 5 million b/d.

Energy prices

The January contract for benchmark US light, sweet crudes jumped $3.34 to $97.22/bbl Dec. 20 on the New York Mercantile Exchange. The February contract gained $3.19 to $97.24/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $3.34 to $97.22/bbl.

Heating oil for January delivery increased 6.9¢ to $2.85/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 8.96¢ to $2.58/gal.

The January natural gas contract increased 3.2¢ to $3.13/MMbtu on NYMEX. The spot market price for gas at Henry Hub, La., was not available.

In London, the February IPE contract for North Sea Brent was up $3.09 to $106.73/bbl. Gas oil for January rebound by $14.25 to $902.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $2.14 to $105.05/bbl.

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