MARKET WATCH: Euro continues to weaken against US dollar

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 16 -- The New York Mercantile Exchange was closed Feb. 15 for the US Presidents Day holiday, but the euro continued to weaken against the US dollar as markets continued to obsess over the recovery threats of excessive sovereign debts of Portugal, Italy, Ireland, Greece, and Spain.

Previously markets were bearish about the dollar, expecting it to continue to weaken. But the dollar strengthened last week for the fifth consecutive week and is up more than 5% against the euro so far this year.

Moreover, the price of crude gained last week “for the first week in over a month despite a weak inventories report,” said analysts at Pritchard Capital Partners LLC in New Orleans. Oil prices fell Feb. 12, with crude ending a 4-day rally in the New York market, as China in a surprise move raised for a second time this year its bank reserve requirement, up 50 basis points, and European countries failed to spell out promises to help financially troubled Greece with its sovereign debt.

However, the March contract for benchmark US light, sweet crudes dropped $1.15 to $74.13/bbl. Feb. 12 in the New York market, ending a 4-day rally. Pritchard Capital Partners attributed that decline “to dollar strength as crude continues to trade against currencies instead of fundamentals.” They said a base price of $70/bbl for crude “remains highly economical for most projects, and we would not ignore the overall market fundamentals which call for year-over-year improvements in global demand.”

The Energy Information Administration said Feb. 12 commercial US crude inventories increased by 2.4 million bbl to 331.4 million bbl in the week ended Feb. 5, surpassing the Wall Street consensus of a 1.6 million bbl increase. Gasoline stocks gained 2.3 million bbl to 230.4 million bbl, compared with analysts’ expectations of a 600,000 bbl gain. Distillate fuel inventories dipped by 300,000 bbl to 156.2 million bbl in the same week, far less than the 1.6 million bbl decrease analysts expected.

EIA also reported the withdrawal of 191 bcf of natural gas from US underground storage during that week. That reduced working gas in storage to 2.2 tcf, up by 172 bcf from year-ago levels and 114 bcf above the 5-year average.

While the latest gas withdrawal was above the 5-year average, Pritchard Capital analysts said, “Inventories remain roughly 8% above the 5-year average despite being within 1% just 3 weeks prior. With below normal temperatures expected across the eastern US this week, natural gas is poised to drift higher. Land drilling activity both in the US and abroad continues to move higher. The outlook for natural gas over the next 12 months, specifically in the US, is highly debatable.”

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained 17¢ to $71.72/bbl on Feb. 15.

Contact Sam Fletcher at [email protected].