MARKET WATCH: False report triggers oil price spike
Crude oil prices jumped Mar. 1 with North Sea Brent climbing to a 4-year intraday high above $128/bbl on a false report by Iran's Press TV of a pipeline explosion in eastern Saudi Arabia.
James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “Brent shot up by more than $2/bbl within 5 min.” Prices retreated when the Saudis denied the report, but the front-month Brent contract closed above $126/bbl, up more than $3 for the day. Oil prices retreated in early profit-taking Mar. 2 ahead of the weekend.
The price spike demonstrated “how jittery the oil market has become and how wide the fear premium in oil prices is,” said analysts in the Houston office of Raymond James & Associates Inc. They reported Iran benefited from the price spike “to the tune of $12 million that 1 day alone.”
Zhang said, “Oil products were dragged up by crude, while time spread of products weakened further. The front-end of Brent structure also jumped, then fell back sharply, but remained in steep backwardation by historical standards.”
He said, “Clearly the oil market has entered a stage of violent correction, as both bulls and bears are extremely nervous. Headlines, even rumors, are now the main driver. Some sizable stops must have been triggered during later trading session yesterday; price moves were also amplified by low liquidity during later hours. We should expect more money flow driven by intraday market volatility for at least the first week of the new month, given the very high speculative length in the oil market and the scheduled monthly rolling programs for index funds. This will also continue to drive the extremely volatile West Texas Intermediate-Brent spread market.”
Oil prices are likely to remain heated with media focused on a potential military strike involving Iran. “However, we do expect weakness in the physical market to bite,” said Zhang. “Refining margins in Europe are very poor. The time spread in Brent has to rely on arbitrage to Asia for support. While we are not trying to downplay the geopolitical risks that threaten global oil supply or exaggerate demand destruction, we do not see going long or short oil futures at the current levels as preferred trading strategies. Instead, we favor strategies such as put spreads or call spreads to express one’s directional view of the market.
Energy prices
The April contract for benchmark US light, sweet crudes climbed as high as $110.55/bbl before settling at $108.84/bbl, up $1.77 for Mar. 1 on the New York Mercantile Exchange. The May contract gained $1.75 to $109.27/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.77 to $108.84/bbl.
The new front-month April heating oil contract increased 6.94¢ to $3.28/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 9.45¢ to $3.35/gal.
The April natural gas contract dropped 15.3¢ to $2.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 3.1¢ to $2.40/MMbtu.
In London, the April IPE contract for North Sea Brent jumped to an intraday high of $128.40/bbl before closing at $126.20/bbl, up $3.54 for the day. Gas oil for March was up $6.75 to $1,009.50/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.29 to $122.08/bbl.
Contact Sam Fletcher at [email protected].
About the Author
Sam Fletcher
Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.