MARKET WATCH: Energy prices decline with slowing Chinese economy

The front-month crude oil contract ended a three-session rally Mar. 12, dropping 1% in light trading in the New York market amid concerns the Chinese economy may be slowing with its largest monthly trade deficit in more than 20 years.

“Natural gas continued to slide, ending the session down 2.4%,” said analysts in the Houston office of Raymond James & Associates Inc.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “March ICE gas oil futures contracts expired on a strong note at the highest level since May but lead to some sell-off in the time spread at the front-end of the forward curve. Oil products generally followed crude lower, with reformulated stock for oxygenate blending (RBOB) gasoline being the most resilient, as the market continued to focus on the reduced refining capacity along the East Coast of the US. The Brent structure was a touch softer, and so were most physical price differentials.”

Zhang said, “The oil market appears to remain in a consolidation mood as far as flat prices are concerned. There have been few headlines about the Iranian sanctions in recent days, with focus having shifted to the negative impact from high oil prices. Historical data suggests that the price rally since the beginning of this year is likely to cut global growth by around 0.25% to 0.5%, which is likely to be reflected in the economic data release in the coming month, if the price remains heated. It is worth noting the speed of price increase measured year-over-year…has been much smaller than the price spike during the first 4 months of last year, which should tame the negative effect to some extent.”

Olivier Jakob at Petromatrix in Zug, Switzerland, noted warmer than normal temperatures in both Europe and the US have reduced any rush to refill heating oil tanks. “In the US, the [temperature] deviations to normal are extreme and will also be a continued pressure point on US natural gas,” he said. “The temperature deviations in Europe are not as extreme as in the US, but in Europe we are starting to monitor more closely the water levels on the Rhine; they are trending lower, and if the trend is continued it will contribute to product backing up in Amsterdam, Rotterdam, and Antwerp, which will be negative for the ICE gas oil spreads or the ICE gas oil crack.”

Jakob reported, “Buzzard [field] is said to be experiencing problems again. The Brent front spreads did not move much yesterday, but if Buzzard starts to yo-yo again, we don’t see the risk-reward of being on the short side of the Brent spreads. Any greater backwardation in Brent on the back of Buzzard would also be negative for the ICE gas oil crack.

In other news, President Barack Obama “is coming under greater pressure from the rising price of gasoline,” said Jakob. “He continues to blame the high oil prices on ‘loose talk’ of war the same day that the US sends a third aircraft carrier to the Persian Gulf.”

Executives of the US Federal Reserve System met Mar. 13, but analysts expected no major announcement.

Energy prices

The April contract for benchmark US sweet, light crudes dropped $1.06 to $106.34/bbl Mar. 12 on the New York Mercantile Exchange. The May contract lost $1.03 to $106.84/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.06 to $106.34/bbl.

Heating oil for April delivery declined 2¢ to $3.24/gal on NYMEX. RBOB for the same month slipped 0.94¢ to $3.32/gal.

The April natural gas contract fell 5.5¢ to $2.27/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 3.1¢ to $2.16/MMbtu.

In London, the April IPE contract for North Sea Brent decreased 64¢ to $125.34/bbl. The expiring March gas oil contract was unchanged at $1,033.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 27¢ to $123.88/bbl.

Contact Sam Fletcher at samf@ogjonline.com.