China (Platts)-- 19-23 Mar
2007
By reporters at Platts, the
energy information division of the McGraw-Hill Companies. For
more information about Platts' information products in China,
contact Platts at
china@platts.com, or
call its representative office in Guangzhou at (+86) 20 2881
6588.
Developments in Iran will be squarely at the front of
traders' minds in the energy futures markets this week, after
rising tensions last week propelled crude and gas futures
higher.
Front-month, light sweet crude oil futures in on the New York
Mercantile Exchange rallied to settle at $62.28 per barrel, a
gain of 9% from the week before. The expiry of the deeply week
April contract helped lift the headline price. But most of the
gains came on Thursday and Friday.
May crude futures on London's ICE Futures gained 5% to close
at $63.18 per barrel.
Iran detained 15 British sailors at the end of last week,
while the UN was set to meet over the weekend to likely vote on
stiffer sanctions against Tehran for refusing to suspend its
uranium enrichment program.
"Developments surrounding Iran--including the detention of 15
British naval personnel and a new draft UN Security Council
resolution--could certainly be considered an escalation," said
Citigroup analyst Tim Evans in a report.
"We think these markets have definitely established that the
path of least resistance is to the upside."
Beyond political events, supply and demand seemed to be very
supportive of higher futures values as well. Gasoline futures in
New York gained 5%, after crossing the $2.00 per gallon level
for the first time in seven months. Tightening fundamentals have
caused the front of the gasoline futures curve to strengthen,
pushing flat prices higher.
The US' Energy Information Administration last week reported
a 4 million barrel crude stock build, but gasoline and
distillate inventory draws were considered bullish.
US gasoline stocks continued to decline, falling a
higher-than-expected 3.4 million barrels to 210.5 million
barrels, potentially setting up a tight driving season.
Gasoline stocks have fallen 16.725 million barrels in the
past six weeks, leaving inventories 11.1 million barrels below a
year ago and just 782,800 barrels above the five-year average.
Low gasoline imports combined with production below 9 million
barrels per day in the US has been insufficient to keep up with
demand growth of 2.1% on a four-week moving average.
The Federal Reserve Bank's decision to leave its benchmark
rate at 5.25% and the subsequent rally in equity markets were
also seen as bullish factors for oil.
Both events lent themselves to technically-motivated buying
in the end. "While we continue to suggest a loose connect
between short-term equity swings and future petroleum demand
trends, the psychological impact off of the increased likelihood
that a recession will be avoided tended to spur rotation of
buying interest back to the crude market and away from the
products," energy consultant Jim Ritterbusch said in a report.
US gas futures rose by 5%, partly thanks to rising US oil
futures.
They could possibly have risen faster, but following
spring-like weather across much of the country, the US EIA
reported a rare wintertime injection into US natural gas storage
of 17 billion cubic feet for the week ended March 16, raising
nationwide stocks to 1.533 trillion cubic feet.
The build, the first in the month of March since 2003, was
above expectations, which generally ranged from a 1 billion
cubic feet injection to a 4 billion cubic feet withdrawal.
"We still have a whole lot of gas in the ground," commented
Summit Energy commodity analyst Brad Samples. "That's keeping
the current price [of gas] down a bit."
Analyst Jason Gammel of Prudential noted last week's US
weather was 28% warmer than normal, and the forecast for this
week is 22% warmer than average.
Several analysts agreed that given current NYMEX gas futures
prices, the injection season could be quite active. The contango
between near-month contracts and winter-month contracts has
narrowed dramatically compared with last year, but at more than
$2 per million British thermal units, the analysts said the
spread should prompt a solid pace of injections this spring and
summer.
"We don't need $4 price spreads for the market to inject at a
healthy rate," said Charlie Sanchez, vice president of energy
markets with Gelber & Associates. The current spread of around
$2.25 between front-month and winter-month values "more than
pays for the carrying costs," he said.
Finally, although market observers have been talking up the
return of industrial gas demand following the precipitous drop
in gas prices last year, some analysts say government figures
place that assertion in doubt.
"There is an assumption in the market that in addition to the
weather, strong industrial demand is underpinning the natural
gas market," said Stephen Schork, publisher of The Schork
Report. "This may be true, but year-end data from the Department
of Energy fails to fully corroborate this hypothesis."
Citing DOE figures, Schork said industrial gas consumption
totaled 7.732 trillion cubic feet in 2006, the lowest level
since 1988. From 1997 to 2005, he said, industrial demand slid
by a modest 220,000 million cubic feet per day, while 2006 usage
alone fell 344,000 million cubic feet per day from 2005.
Schork surmised that a considerable amount of industrial
demand has migrated offshore thanks to a hike in average gas
prices from about $4.30 per million British thermal units at the
start of the decade to nearly $7.40 million cubic feet per day
over the past three years. "Once this demand moves abroad, it
does not come back," he said.
Updated: March 26, 2006
