MARKET WATCH: Crude tops $82/bbl, but gas prices decline

Natural gas continued to slump Mar. 29, but the front-month crude contract jumped almost 3% to above $82/bbl in the New York market as the euro strengthened against the US dollar after Greece announced plans to raise $7 billion to meet debt obligations.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 30 -- Natural gas continued to slump Mar. 29, but the front-month crude contract jumped almost 3% to above $82/bbl in the New York market as the euro strengthened against the US dollar after Greece announced plans to raise $7 billion to meet debt obligations.

“Gas prices fell another 1% yesterday to close at the lowest level of 2010,” said analysts in the Houston office of Raymond James & Associates Inc. Despite weak gas prices, energy stocks managed to outperform the broader market, they said.

The Energy Information Administration released its monthly natural gas production (EIA-914) data for January, showing a sequential increase of 600 MMcfd, with onshore volumes up 500 MMcfd. “This implies core US supply (hurricane-adjusted) is now down only 1.2 bcfd from the February 2009 peak,” said Raymond James analysts. This “supports our view that production has bottomed,” they said. “Natural gas bulls will likely point to the upcoming switchover in the EIA's methodology and potential for a significant revision as evidence that the EIA has been overstating production, but we will have to see with next month's release.” Raymond James analysts said, “If we are in fact at a bottom (EIA data is correct), then our bearish summer model will likely prove conservative and, in fact, we could very well see supply growth in 2010.”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Natural gas futures have continued their downward trend as supplies have held firm while heating demand abated significantly in March due to warmer-than-normal temperatures.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The dollar index was down on the day while the Standard & Poor’s 500 index was higher, and while that makes for a nice ex-ante justification for the surge in oil prices yesterday, on an intraday basis the velocity of West Texas Intermediate right at the open of the market was not linked to movements on the dollar or the equities. To the contrary, oil was a leader for the exogenous markets and not a follower.”

Jakob added, “We have very likely underestimated the potential for end-of-the-quarter window dressing. Commodities have been an asset-class underperformer during the first quarter, but this late surge is at least allowing them to come closer to having the head above water for the final print on the quarterly report.” He said, “A push of WTI to the 2010 highs of $83.95/bbl, and pension fund managers will not see any red ink in commodities in their first quarter financial report.”

As far as oil fundamentals, Jakob said, “We could not identify any fresh developments that could have justified a sudden 1-hr buying spree on WTI. To the contrary, the ICE Gas oil front backwardation has started to correct lower on the confirmation that the Wilhelmshaven refinery (260,000 b/d) in Germany is in restart mode for the second half of April after a 6-month shutdown. Finding crude supplies to feed the restart of refineries coming out either of maintenance or of structural shutdown should not be an issue either. The Nigerian export program is heavy, and Forties [field] differentials are trading at a higher discount than a year ago as the planned platform maintenance on Buzzard is apparently being pushed back for a month.”

The current oil supply system is still one of spare capacity both in upstream and downstream, Jakob said. “Oil demand is definitely better then during the worse of the crisis, but at the current price for crude oil and the current refining margins, what we see is some spare refining capacity coming back on stream (or maintenance being delayed), which is met by higher crude exports from the Organization of Petroleum Exporting Countries members (or maintenance being delayed in [non-OPEC]). The solver economics are starting to work and in an environment of spare capacity we still do not believe that prices either on a flat price basis or on a crack basis have much more to do to force a greater equilibrium,” he said.

Energy prices
The May contract for benchmark US light, sweet crudes escalated by $2.17 to $82.17/bbl Mar. 29 on the New York Mercantile Exchange. The June contract climbed $2.12 to $82.59/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.17 to $82.17/bbl, back in lock-step with the front-month futures contract price. Heating oil for April delivery increased 4.91¢ to $2.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 5.39¢ to $2.26/gal.

The expiring April natural gas contract lost 3¢ to $3.84/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 12¢ to $3.83/MMbtu.

In London, the May IPE contract for North Sea Brent crude advanced $1.88 to $81.17/bbl. Gas oil for April gained $19.25 to $679.50/tonne.

The average price for OPEC’s basket of 12 reference crudes was up 97¢ to $77.77/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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