MARKET WATCH: Crude holds above $80/bbl as energy prices drop

Energy futures prices fell Mar. 4 after two consecutive days of gains, but the front-month crude contract continued to hold above $80/bbl in the New York market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 5 -- Energy futures prices fell Mar. 4 after two consecutive days of gains, but the front-month crude contract continued to hold above $80/bbl in the New York market.

“Crude fell on dollar strength and euro weakness, with the dollar reaching a 2-week high against the euro,” said analysts at Pritchard Capital Partners LLC in New Orleans. “Crude also fell on poor macroeconomic news with pending home sales falling 7.6% in January.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The oil commodities are not only starting to enter the price zone where consumer demand will be tested, but the rest of the energy complex has also not risen in sync; hence there should be some increased substitution competition working against oil molecules.”

Jakob said, “The dollar index has been relatively stable for the last 4 weeks, but together with the rising price of crude oil it means that we continue to gently grind higher towards the price zone where the risk of demand destruction is starting to increase.”

He said, “Apart from the gyrations of the dollar index and sentiment driven by equities, the main risk to oil supplies remains geopolitical events, but they are not clearly defined and hard to price.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, reported, “Although inventory statistics are still showing a relatively oversupplied oil market, total products demand over the past month in the US is up 3% against the similar period last year. We view this is as a relatively bullish result. However, a new economic indicator index implies that economic headwinds remain in place.”

Natural gas fell almost 4% in the futures market Mar. 4, “inching towards $4.50/Mcf,” said analysts in the Houston office of Raymond James & Associates Inc. “The drop came after the Energy Information Administration reported a bearish withdrawal of 116 bcf from storage [in the week ended Feb. 26]. This was well below the consensus estimate of 132 but increased the year-over-year storage deficit to 71 bcf,” they said.

Sieminski said, “According to the EIA, warmer-than-normal temperatures contributed to the below-normal pull [on gas]. But according to the Deutsche Bank gas analytics team, the draw was low after correcting for weather, suggesting that rising shale gas production is coming into the data.”

Jakob noted that there are “only 2-3 more weeks in the drawing season and despite the harsh winter, natural gas supplies did not come under threat and stocks are about at par to the levels of a year ago and above 2007 and 2008.”

Energy prices
The April contract for benchmark US light, sweet crudes dropped 66¢ to $80.21/bbl Mar. 4 on the New York Mercantile Exchange. The May contract fell 63¢ to $80.63/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 66¢ to $80.21/bbl, in step with the front-month futures contract. Heating oil for April delivery lost 2.5¢ to $2.07/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.39¢ to $2.23/gal.

The April natural gas contract fell 18.2¢ to $4.58/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 3¢ to $4.75/MMbtu.

In London, the April IPE contract for North Sea Brent crude decreased 71¢ to $78.54/bbl. Gas oil for March lost $4.50 to $642/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped 10¢ to $76.42/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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