MARKET WATCH: Energy prices continue climbing

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 11 -- Energy prices continued climbing with crude rising to a 1-week high in a late-session rally Feb. 10 in the New York market.

Despite a stronger US dollar, the price of crude climbed after the Department of Energy’s Energy Information Administration raised its forecast for 2010 global oil demand growth by 170,000 b/d to 86.5 million b/d. However, the Organization of Petroleum Exporting Countries trimmed by 10,000 b/d its forecast due to uncertainty about the pace of economic recovery (OGJ Online, Feb. 10, 2009).

In New Orleans, analysts at Pritchard Capital Partners LLC said, “The EIA expects demand to improve in late first half and forecasts an average price of $81/bbl in the second half, up from its previous $80/bbl estimate and our $72.50/bbl call.” Factors impacting Feb. 11 crude trading include: 1. Increasing political uncertainty in Nigeria, the No. 3 supplier of US crude imports (948,000 b/d); 2. China's consumer prices coming in less-than-expected at 1.5% (compared with a 3% consensus); and 3. European Union leaders’ decision on Greece's debt. “All impact the US dollar and subsequently the carry trade and movement in crude prices. Crude appears to have found support around $70/bbl,” said Prichard Capital analysts.

In Houston, analysts at Raymond James & Associates Inc. said, “Yesterday's gains for oil and gas (up 1% and flat, respectfully) could not pull energy stocks out of the red as the Oil Service Index moved with the Dow Jones Industrial Average down 20 basis points. This morning, the DJIA and Standard & Poor's 500 (stock index) were up in premarket trading following a ‘less bad’ continuing jobless claims report.”

With the Eastern seaboard from New York to Washington, DC, buried under several inches of snow, EIA postponed release of its weekly reports on US oil inventories and natural gas storage until Feb. 12. Meanwhile, to the north, Vancouver, BC, is trucking in snow for the opening ceremonies of the 2010 Winter Olympics.

“Despite the snowstorms across the Mid-Atlantic and Northeast, temperatures are not abnormally cold (both regions are expected to be near 40° today), which paired with business closures may keep upcoming withdrawals [from gas storage] in check with the 5-year average, propping up inventories,” said Pritchard Capital Partners. “We are expecting a 162 bcf withdrawal for [the Feb. 12] EIA release, which compares with the current consensus of 180 bcf and the 163 bcf 5-year average.”

They listed the key points of the EIA’s Feb. 10 Short-Term Energy Outlook:

• Expect inventories to trough at 1.644 tcf, or 7% above the 5-year average, 90 bcf below its previous forecast.

• Look for a 2.6% year-over-year production decline to 58.73 bcfd, then increasing 1.3% in 2011.

• US pipeline imports to decline 8.3% to 8.1 bcfd due to weaker Canadian drilling activity and production in 2010, although LNG imports are expected to double to 1.83 bcfd.

• Consumption to increase 0.4% in both 2010 and 2011.

• 2010 average gas price of $5.37/MMbtu, up $1.42/MMbtu year-over-year and averaging $5.86/MMbtu in 2011.

IEA outlook
On Feb. 11, the International Energy Agency in Paris raised its 2010 global oil demand forecast 170,000 b/d to 86.5 million b/d on more robust projections of gross domestic products by the UN’s International Monetary Fund, partly offset by a higher price assumption and persistently weak oil demand among members of the Organization for Economic Cooperation and Development. It estimates global oil demand at 84.9 million b/d in 2009, up 1.5% from 2008, and 86.5 million b/d in 2010, up 1.8% from last year, with growth entirely in non-OECD countries.

Global oil supply fell 45,000 b/d to 85.8 million b/d in January, with higher total OPEC output (mostly NGLs) offset by lower non-OPEC production. IEA revised its non-OPEC production estimate 70,000 b/d higher to 51.4 million b/d with 2010 supply revised up by 120,000 b/d to 51.6 million b/d on slightly improved US and North Sea crude prospects.

IEA said OPEC crude production was up 105,000 b/d to 29.1 million b/d in January. OPEC production of NGL is forecast to rise 800,000 b/d to 5.5 million b/d in 2010, with just over half of the increase related to ramp-up from 2009 project start-ups. The call on OPEC crude and stock change for 2010 was revised up 300,000 b/d to 29.4 million b/d.

Energy prices
The March contract for benchmark US light, sweet crudes increased 77¢ to $74.52/bbl Feb. 10 on the New York Mercantile Exchange. The April contract gained 69¢ to $74.89/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 77¢ to $74.52/bbl. Heating oil for March delivery increased 0.96¢ to $1.95/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month was unchanged at $1.93/gal.

The March natural gas contract inched up 0.2¢ to $5.29/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 5.5¢ to $5.48/MMbtu.

In London, the March IPE contract for North Sea Brent crude was up 41¢ to $72.54/bbl. Gas oil for February gained $4.25 to 576.75/tonne.

The average price for OPEC’s basket of 12 reference crudes increased $1.02 to $70.78/bbl.

Contact Sam Fletcher at [email protected].