MARKET WATCH: NYMEX crude oil stays positive on lower rig count

Oil prices on the New York and London markets closed higher Feb. 2 on positive momentum generated by a falling US rig count, suggesting cuts in production will follow at some point.

Gareth Lewis-Davies, BNP Paribas analysts, said the lag between falling rig counts and falling production is up to 9 months, and he said the oil price rally might not be sustained.

“People are trying to catch a falling knife. Investors are trying to buy ahead of the upturn in physical balances, being afraid not to miss the boat,” Lewis-Davies told the Wall Street Journal.

A US refinery strike and the possibility of tightening gasoline supply also supported oil prices, analysts said. The United Steelworkers Union and Shell Oil Co. reportedly returned to negotiations as a strike at nine refineries entered its third day on Feb. 3.

Ole Hansen, head of commodity strategy at Saxo Bank, said a slump in Libyan exports supported Brent crude oil prices. Reports indicate Libyan exports have shrunk to their lowest level in 6 months, Hansen said. Regarding US crude prices, he noted a difference between fundamentals and the positive momentum after months of an overall decline.

“Fundamentals, however, do not justify a major recovery at this stage considering expectations that the global supply glut could rise even further over the coming months,” Hansen said. “Rising crude oil prices will make it possible for many shale producers to restart their forward hedging at profitable levels and thereby maintain production levels.”

RBC Capital Markets cut its price forecasts for 2015, with analysts saying Brent crude is expected to average $57/bbl compared with their previous forecast was $71/bbl. For US light, sweet crude oil, RBC now expects a 2015 average of $53/bbl compared with its previous forecast of $65/bbl.

Energy prices

The NYMEX March crude oil contract gained $1.33 on Feb. 2, closing at $49.57/bbl. The April contract rose $1.46 to $50.45/bbl.

The New York Mercantile Exchange gas contract for March settled down 1¢ to $2.68/MMbtu on the New York Mercantile Exchange. On the cash gas market, the Henry Hub, La., hub gas price dropped by 5¢ to $2.63/MMbtu on Feb. 2.

Heating oil for March delivery rose 5.7¢ to a rounded $1.75/gal. Reformulated gasoline stock for oxygenate blending for March was up 6.6¢ to a rounded $1.54/gal.

The March ICE contract for Brent crude oil gained $1.76 to settle at $54.75/bbl, which marked its highest closing since Jan. 2. The front-month Brent contract settled $5.18/bbl higher than US light, sweet crude for March delivery.

Meanwhile, the April Brent contract was up $1.79 to $55.74/bbl. The ICE gas oil contract for February rose $34 to $512.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes on Feb. 2 was $48.19/bbl, up $3.36 from Jan. 30.

Contact Paula Dittrick at paulad@ogjonline.com.

*Paula Dittrick is editor of OGJ’s Unconventional Oil & Gas Report.

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