MARKET WATCH: Bullish indicators drive up energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 3 -- Energy prices jumped again Feb. 2, with the front-month crude contract climbing 4% on top of a 2% increase in the previous session in the New York market.

“A ripping broader market took energy names and oil prices along for the ride,” said analysts in the Houston office of Raymond James & Associates Inc. The market was stimulated by strong January manufacturing and home sale numbers, forecasts of cold weather, and “reluctance” among members of the Organization of Petroleum Exporting Countries to change output quotas. “Natural gas also traded higher yesterday (though less than 1%) on colder weather forecasts over the next 2 weeks,” they said.

US inventories
The Energy Information Administration said Feb. 3 commercial US crude inventories increased 2.3 million bbl to 329 million bbl in the week ended Jan. 29. The Wall Street consensus was for only a 400,000 bbl gain. Gasoline stocks fell 1.3 million bbl to 228.1 million bbl, counter to an expected increase of 1.4 million bbl. Finished gasoline inventories increased while blending components inventories decreased during the week. Distillate fuel inventories dropped 1 million bbl to 156.5 million bbl, short of an expected decline of 1.2 million bbl.

Imports of crude into the US were up 559,000 b/d to 8.4 million b/d in the same period. In the 4 weeks through Jan. 29, US crude imports averaged 8.4 million b/d, down 1.4 million b/d from the comparable 4-week period last year.

The input of crude into US refineries declined 163,000 b/d to 13.5 million b/d last week with units operating at 77.7% of capacity, said EIA. Gasoline production decreased to 8.6 million b/d. Distillate fuel production declined to 3.5 million b/d.

Iran
Western envoys apparently have made progress in informal meetings with Iranian officials in Davos, Switzerland. On Feb. 2, Iranian President Mahmoud Ahmadinejad said on domestic television Iran is agreeable to sending its uranium abroad for enrichment—a compromise previously proposed by major powers that Iran rejected.

“If Iran actually follows through on this, it would change the strategic equation vis-à-vis the nuclear issue, and the risk of military confrontation would certainly be reduced. However, we'll believe it when we see it,” said Raymond James analysts. “Ahmadinejad's comments could be just another delaying tactic—something Iran has used in the past on many occasions.” They noted Iranian negotiators originally backed the compromise “but were subsequently overruled by their political superiors, an indication of a power struggle within the ruling elite.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said Feb. 3, “Iran has been dancing a cha-cha-cha on the nuclear issue (including launching a new satellite rocket today) hence we still need to approach its new statement on enrichment abroad with some caution, but given the Davos whispers [of progress in negotiations] we also want to be ready for a possible geopolitical improvement over ‘Iranium.’ Anyway, with the US new arms sales to Taiwan and the US administration’s confirmation that [President Barack] Obama will be meeting the Dalai Lama, we can forget about any Chinese support for new sanctions over Iran.”

That means the geopolitical premium on crude prices primarily depends on developments in Nigeria where rebel Movement for the Emancipation of the Niger Delta said it was ending a 3-month cease-fire. However, Jakob said, “It is difficult to assess what is the current status of the MEND following last year’s amnesty.”

Energy prices
The March contract for benchmark US light, sweet crudes jumped by $2.80 to $77.23/bbl Feb. 2 on the New York Mercantile Exchange. The April contract climbed higher, up $2.81 to $77.72/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $2.80 to $77.23/bbl. Heating oil for March delivery advanced 7.68¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month escalated 8.58¢ to $2.02/gal.

The March natural gas contract increased 2¢ to $5.45/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 15¢ to $5.48/MMbtu.

In London, the March IPE contract for North Sea Brent crude was up $2.95 to $76.06/bbl. Gas oil for February gained $15.75 to $602.25/tonne.

The average price for OPEC’s basket of 12 reference crudes increased $2.03 to $73.05/bbl.

Contact Sam Fletcher at samf@ogjonline.com.



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