MARKET WATCH: Crude's price decline slows; gas price falls

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 15 -- Crude prices continued declining but at a slower pace Jan. 14 while natural gas dropped 2.5%, wiping out gains from the previous session in the New York market, following the latest government report on gas in storage.

The Energy Information Administration reported the withdrawal of 266 bcf of natural gas from US underground storage in the week ended Jan. 8. That left 2.85 tcf of working gas in storage, 103 bcf more than in the same period last year and 121 bcf above the 5-year average. That outtake was “well above the consensus estimate of 253-255 bcf,” said analysts in the Houston office of Raymond James & Associates Inc.

“Many were looking for this week's withdrawal to break the all-time record withdrawal of 274 bcf that occurred in January 2008, but it appears that gas bulls will have to wait another year after weather forecasters predicted that the coldest weather of winter is now behind us,” Raymond James analysts reported. “Oil didn't fare much better, ending the day slightly down after retail data showed that sales unexpectedly fell in December and after disappointing jobs data.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Yesterday, the US retail sales data for December was not as good as expected and put a cap on the global markets, and today there will a tsunami of global data just in front of the long weekend.” Floor trading on the New York Mercantile Exchange will be closed Jan. 18 for the Martin Luther King holiday, so Jakob expects “some book squaring” in the Jan. 15 session.

Meanwhile, he said, “The oil markets are being supported in winter by gasoline rather than by heating oil and this despite multiyear high gasoline stocks for the time of the year and the highest days-of-cover in gasoline since 1999. This shift of focus from distillates to gasoline is also visible in the shift of open interest, where positions are being withdrawn in distillates but increased in gasoline. With the winter to summer contango, gasoline is already priced at levels that have tested demand elasticity in a fully running economy; hence we remain skeptic about the US gasoline demand revival in what is still a question-mark economy.”

In yet another indicator of a still-flagging economy, Jakob said the latest data from the American Railway Association show carloads down 12.4% from the low levels of a year ago and down 28% from 2 years ago.

IEA’s outlook
The International Energy Agency in Paris reported global crude production increased 270,000 b/d to 86.2 million b/d in December with higher output from the Organization of Petroleum Exporting Countries and non-OPEC producers.

“A reappraisal of Azerbaijan’s crude production outlook leads to a 150,000 b/d revision for 2010 non-OPEC supply to 51.5 million b/d. Non-OPEC output this year will grow 200,000 b/d from a modestly revised 51.3 million b/d in 2009, driven by biofuels and rising crude supply in Brazil, the former Soviet Union countries, Australia, Colombia, and India,” IEA said.

OPEC production increased 75,000 b/d to 29.1 million b/d in December, putting effective spare capacity at 5.4 million b/d. The call on OPEC crude stands at 28.7 million b/d for the first quarter and an average 29.1 million b/d for all of 2010. OPEC NGLs are expected to escalate by 885,000 b/d to 5.7 million b/d.

IEA’s forecast of global oil demand was “virtually unchanged” at 84.9 million b/d for 2009 and 86.3 million b/d in 2010.

IEA noted crude prices surged to 15-month highs in early January, peaking $10-12/bbl from December lows with cold winter weather in much of the northern hemisphere and escalating geopolitical tensions in key oil producing countries. Prices have since eased, generally trading at $78-80/bbl.

Jakob said, “The IEA estimates show that stocks would remain flat despite world demand being 1.4 million b/d higher than in 2009, and that if OPEC was to not increase production. For now, OPEC compliance continues to drift lower and is at 58%, with the IEA estimating OPEC workable spare capacity at 5.4 million b/d (excluding Iraq, Nigeria, and Venezuela nominal spare capacity, which would be an additional 1 million b/d).”

Energy prices
The February contract for benchmark US light, sweet crudes declined 26¢ to $79.39/bbl Jan. 14 on NYMEX. The March contract dipped 16¢ to $79.88/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 26¢ to $79.39/bbl. Heating oil for February delivery lost 1.17¢ to $2.08/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month, however, gained 1.36¢ to $2.07/gal.

The February natural gas contract dropped 14.5¢ to $5.59/MMbtu, wiping out its 14.2¢ gain from the previous session on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 18¢ to $5.79/MMbtu.

In London, the February IPE contract for North Sea Brent crude lost 49¢ to $77.82/bbl. Gas oil for February gained 25¢ to $636.25/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 44¢ to $77.59/bbl on Jan. 14.

Contact Sam Fletcher at samf@ogjonline.com.