MARKET WATCH: Energy prices fall with more job losses, stronger dollar

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 26 -- Energy prices fell Feb. 25, wiping out gains from the previous session, as US unemployment jumped and the US dollar strengthened against the euro with Greece’s debt rating under threat.

The Oil Service Index and Standard & Poor’s Oil & Gas Exploration & Production Select Industry index traded most of the day in the red, but turned around to end marginally up for the day.

The US Department of Labor reported initial claims for unemployment benefits in the US climbed by 22,000 to a higher-than-expected 496,000 last week. The previous week’s numbers also were revised upward, showing a cumulative hike of 12% over the 2 weeks.

Moreover, orders for durable goods fell 0.6%, “the largest drop since August,” said analysts at Pritchard Capital Partners LLC in New Orleans. “Without successive bullish indicators, it is unlikely that crude will breakout through $80 in the near-term.”

Meanwhile, the Energy Information Administration reported the withdrawal of 172 bcf of natural gas from US underground storage in the week ended Feb. 19. That left 1.85 tcf of working gas in storage, down 56 bcf from a year ago and 13 bcf above the 5-year average. “Keep in mind, we have not seen a deficit [compared with the previous year] in well over a year (Jan. 16, 2009),” said analysts in the Houston office of Raymond James & Associates Inc.

Pritchard Capital Partners said, “Despite the strong storage draw, natural gas fell as winter weather continues to lose its influence on natural gas prices as traders shift their view to the end of winter.” Nevertheless, they said, “With winter storms battering much of the northeast, we expect another strong storage withdrawal next week.”

Supply and demand
In separate action, the EIA revised total US demand of crude and products in December higher by 53,000 b/d, “a relative minor correction compared to what was the norm in 2008 and about at par to the correction made in November,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Gasoline demand was revised lower while distillate demand was revised higher. The main reason for the revision higher of distillate demand was the drop in the net exports that were 236,000 lower than in November and at the lowest level since September 2008. During most of 2009, US refineries have been exporting distillates to the artificial demand pool of floating storage. As the floating storage demand starts to abate, the unwanted distillate is finding its way back to onshore stocks and has offset the higher weather-related demand.”

Jakob said, “Total demand is about at par to the levels of a year ago but 1.6 million b/d lower than in 2007. Last year we were right in the crisis shutdown of the economy, but total petroleum demand is not higher than at the time. Furthermore we need to note that total demand excluding LPGs is down 445,000 b/d vs. December 2008 and 1.7 million b/d lower than in 2008 (the full 2009 year being down 780,000 b/d vs. 2008 and 1.8 million b/d vs. 2007).

US imports of crude from Saudi Arabia remain low, “down to levels where the US now produces close to as much ethanol as it is importing crude oil from Saudi Arabia,” Jakob said. Total crude imports from members of the Organization of Petroleum Exporting Countries are down 1.2 million b/d from last year in December, down 1.1 million b/d for the fourth quarter, “and are at the lowest levels since 2003,” he said. On a crude oil plus product basis, US imports from OPEC were in December 1.5 million b/d lower than in the same month in 2008 and 1.9 million b/d lower than in December 2007.

Jakob said, “US crude oil imports from Mexico were 63,000 b/d lower than a year ago, and that deficit it not likely to improve since Mexican data released yesterday shows January crude oil production down 70,000 b/d from a year ago. Crude oil exports from Mexico in January are down 50,000 b/d from December and down 128,000 b/d from January 2009.

On the other hand, he said, “Mexico demand for petroleum products was in January 218,000 b/d lower than in December and down 65,000 b/d vs. January 2009 or 137,000 b/d lower than in January 2008. Demand for gasoline is slightly down (by 18,000 b/d) vs. last year and imports of gasoline were 79,000 b/d lower and at the lowest levels since April 2008.”

Energy prices
The April contract for benchmark US light, sweet crudes traded at $77.05-80.32/bbl Feb. 25 on the New York Mercantile Exchange before closing at $78.17/bbl, down $1.83 for the day. The March contract dropped $1.85 to $78.53/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., fell $2.40 to $77.60/bbl. Heating oil for March delivery declined 5.59¢ to $1.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 6.19¢ to $2.04/gal.

The new front-month April natural gas contract was down 9.2¢ to $4.77/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 13.5¢ to $4.82/MMbtu

In London, the April IPE contract for North Sea Brent crude declined $1.80 to $76.29/bbl. Gas oil for March fell $18 to $612.75/tonne.

The OPEC office in Vienna was closed Feb. 26, with no price updates available.

Contact Sam Fletcher at samf@ogjonline.com.