MARKET WATCH: Mideast tensions help oil regain some of earlier losses

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 17 -- After declining for three sessions, the front-month crude contract price inched up 0.8% Feb. 16 in the New York market as political unrest spread through the Middle East and Africa while the US government reported a lower-than-expected build in crude inventories.

“Middle East tensions have a greater effect on North Sea Brent crude, which rose 2.1%, further increasing the disconnect with [the US benchmark] West Texas Intermediate. Strength in crude led energy stocks to outperform the broader market, which posted modest gains on strong earnings and increased merger and acquisition activity,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas remained under pressure, falling 1.4% as forecasts for mild weather tempered demand expectations.” Both oil and gas prices were up in early trading Feb. 17.

The rise in oil prices partially was due to claims by the Israeli foreign minister that two Iranian warships were to sail through Suez Canal en route to Syria.

“The two vessels were later identified as a frigate and a supply vessel, and the transit through Suez Canal has since been cancelled,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

However, Olivier Jakob at Petromatrix, Zug, Switzerland, said The Khark, a 1977 military cargo vessel with one small canon, and the Alvand, a small frigate, left Iran before the Cairo riots and were on a well-publicized voyage to the Mediterranean.

“All the intelligence services (and anyone interested as the move was publicized) knew about those ships, but nobody (US or Israel administration) made any noise about it during the Cairo riots,” Jakob said. “Even more intriguing, those two vessels were reported docked for a few days last week at the Saudi Arabian port of Jeddah. Anyway, those two ships will not represent any material threat, but they are a bit of a symbolic provocation and the sort of fuel that quickly catches fire in a flat price market where sellers are absent (at least in Brent).”

Jakob added, “The irony of it all is that the US aircraft carrier Enterprise sailed south through the Suez yesterday on its way to the Arabian Gulf. The crossing in the Suez of US warships sailing south and Iranian warships sailing north would have been an interesting sight with sailors waiving at each other, but for now the Iranian ships are not yet on the waiting list for passage.”

US inventories
The Energy Information Administration reported Feb. 17 the withdrawal of 233 bcf of gas from US underground storage for the week ended Feb. 11, exceeding the Wall Street consensus for withdrawal of 230 bcf. That left little more than 1.9 tcf of working gas in storage, down 141 bcf from the year-ago level and 128 bcf below the 5-year average

EIA earlier said commercial US crude inventories increased by 900,000 bbl to 345.9 million bbl in the week ended Feb. 11, far short of the Wall Street consensus for a 2 million bbl jump.

Gasoline stocks were up 200,000 to 241.1 million bbl in the same period, also well below Wall Street’s expectations of a 1.9 million bbl increase. Finished gasoline inventories increased while blending components inventories decreased last week.

Distillate fuel inventories dropped 3.1 million bbl to 161.3 million bbl. Analysts expected a decline of only 400,000 bbl (OGJ Online, Feb. 16, 2011).

Energy prices
The March contract for benchmark US sweet, light crudes regained 67¢ to $84.99/bbl Feb. 16 on the New York Mercantile Exchange. The April contract increased 27¢ to $87.84/bbl. On the US spot market, WTI at Cushing, Okla., was up 67¢ to $84.99/bbl.

Heating oil for March delivery advanced 4.58¢ to $2.77/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 5.59¢ to $2.54/gal.

The March natural gas contract, however, dropped 5.5¢ to $3.92/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $3.91/MMbtu.

In London, the April IPE contract for North Sea Brent crude jumped by $2.14 to $103.78/bbl. Gas oil for March increased 75¢ to $867.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dipped 32¢ to $98.68/bbl.

Contact Sam Fletcher at [email protected].