MARKET WATCH: Energy prices rebound in generally bullish markets

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 2 -- Energy prices shot up Dec. 1 in the New York market, wiping out losses from the previous session and in most cases surpassing the Nov. 24 rally that led into the long Thanksgiving holiday weekend in the US.

This latest rally “was not an oil story per se as basically everything went up sharply apart from precious metals,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

Energy and the broader equities market rallied on positive economic data, including a bigger-than-expected increase in US private payrolls, the fastest expansion of Chinese manufacturing in 7 months, and the temporary reduction of concern over Europe’s debt crisis. “The same factors also spurred the outlook for increased crude demand, leading the commodity to rise 3.1% despite a bearish Department of Energy petroleum inventory report,” said analysts in the Houston office of Raymond James & Associates Inc. “Not to be outdone, natural gas received a 2.1% boost due to forecasts for colder-than-normal weather in the coming weeks.”

The DOE’s Energy Information Administration reported commercial US crude inventories increased 1.1 million bbl to 359.7 million bbl in the week ended Nov. 26. The Wall Street consensus was for a draw of 1.2 million bbl after an unexpected build in crude stocks the previous week. Gasoline inventories were up 600,000 bbl to 210.2 million bbl in the same period, EIA said, short of market expectations of a 300,000 bbl gain. Finished gasoline inventories decreased while blending components inventories increased. Distillate fuel stocks declined 200,000 bbl to 158.1 million bbl, far short of the 1.1 million bbl drop analysts expected (OGJ Online, Dec. 1, 2010).

EIA reported Dec. 2 a draw of 23 bcf of natural gas from US underground storage in the week ended Nov. 26, less than the Wall Street consensus for a 27 bcf withdrawal. That left little more than 3.8 tcf of working gas in storage, down 23 bcf from storage levels in the comparable 2009 period but 347 bcf above the 5-year average.

The energy market rally was boosted by official comments by officials from both sides of Atlantic that supported the euro. “Front-month West Texas Intermediate [when comparatively priced] in euros exceeded the highs for the year set back in May and settled at a new 2-year high of €66.28/bbl. The market appears to treat the European debt problem as a passing matter, although we believe it is far from resolved,” said analysts at Standard New York Securities Inc., the Standard Bank Group.

The Venezuelan energy minister’s comment that $100/bbl is a “fair price” for oil and the fact the Organization of Petroleum Exporting Countries is unlikely to change its output quotas at its next meeting also stimulated the rally. “Based on our supply-demand forecasts, we do not see the need for OPEC to raise production within the next 6 months. However, the comments are likely to raise oil price expectation,” said Standard New York analysts.

Standard New York Securities analysts said, “Despite the recent better-than-expected economic data from the US, improvements in US oil demand has so far been illusive. Right now oil market fundamentals are irrelevant with broader financial market developments taking the lead on short-term direction. However, our view remains unchanged—fundamentals are likely to hold the oil within the range-bound pattern for the remainder of this year.”

Energy prices
The January contract for benchmark US light, sweet crudes shot up $2.64 to $86.75/bbl Dec. 1 on the New York Mercantile Exchange. The February contract escalated $2.60 to $87.25/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.64 to $86.75/bbl. The new front-month January heating oil contract climbed 8.12¢ to $2.41/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 11.36¢ to $2.30/gal.

The January natural gas contract gained 8.9¢ to $4.27/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 5.5¢ to $4.20/MMbtu.

In London, the January IPE contract for Brent crude jumped $2.95 to $88.87/bbl. Gas oil for December gained $5.50 to $734.75/tonne.

The average price for OPEC’s basket of 12 reference crudes advanced 48¢ to $84.13/bbl.

Contact Sam Fletcher at samf@ogjonline.com.