MARKET WATCH: Supply threats send oil prices soaring
Sam Fletcher
Senior Writer
HOUSTON, Feb. 12 -- Energy prices continued to climb Feb. 11, temporarily spiking at a 1-month high of $94.72/bbl in intraday trading, after Venezuelan President Hugo Chavez threatened over the weekend to stop selling oil to the US over a legal dispute with ExxonMobil Corp.
"Oil is up $5/bbl over the past 2 trading days - due to colder weather, a local refinery shut-in, and more importantly, fears of Venezuela's response to [ExxonMobil's] recent action to freeze $12 billion of oil assets. With Venezuela supplying a significant amount of US imports, further jawboning from Chavez should keep crude traders on edge," said analysts in the Houston office of Raymond James & Associates Inc.
Valero Energy Corp. said Feb. 11 that power was restored and several main process units were restarted, including the crude unit, coker, and FCC, at its 210,000 b/d Delaware City refinery following a power outage due to severe weather. An investigation of the cause of the incident is under way, but the company said it did not expect any major effect on production.
ExxonMobil said courts in the US and the UK last week granted its requests to freeze more than $12 billion in assets of state oil firm Petroleos de Venezuela SA (PDVSA) to ensure compensation payment for the nationalization of two Venezuelan oil projects in which the US company was involved (OGJ Online, Feb. 11, 2008).
PDVSA is expected to appeal court rulings in the US, the UK, and the Netherlands that froze it assets. Some say the national oil company could prevail if it opens its books for the courts' inspection. But that would reveal PDVSA's closely guarded secret of its true production levels and the funds it provides Chavez's government to finance social programs.
Observers claim PDVSA's production has fallen 25% since Chavez took office in 1999, largely as a result of his firing of 20,000 PDVSA employees who led an abortive strike in 2002-03 to force him from office. Venezuela is estimated to produce 2.4 million b/d of crude and to export 1.9 million b/d primarily to the US, which is one of the few countries that have refineries capable of processing Venezuela's heavy, sour crude. Venezuela would have trouble finding another customer for the 70% of its crude exports to the US that accounts for most of the Chavez government's revenues.
Also boosting crude prices were reports unidentified gunmen attacked a naval vessel escorting petroleum industry boats in Nigeria, killing one sailor and injuring another. Such attacks have curtailed a quarter of Nigeria's crude production over the last 2 years.
The front-month crude contract was up by $1.82/bbl at the close of the New York market Feb. 11. But that included a $2.15/bbl [upward] move in less than 3 min," said Olivier Jakob at Petromatrix, Zug, Switzerland. That market "seems to be under the dynamics of stop trigger trading, with such patterns already apparent on Friday [Feb. 8]," he said.
Jakob noted, "In mid-December, West Texas Intermediate also failed to break the $86/bbl [floor] barrier [as happened again last week], and it was followed by a very strong rally similar in nature to the current one which also took place on the days leading to the options expiry." The March crude options are to expire Feb. 14. Jakob said, "If we are under stop trigger dynamics, then the next logical step would be to chase the orders above $95/bbl. This is also the level that the mid-December rally chased and failed."
He said, "Apart from a possible play around the WTI options expiry, there are strong investment inflows into the winter fuels." Both heating oil and natural gas had a record volume day in Feb. 8 trading, with "strong additions" in open interests. "The gasoline crack remains under pressure but the heating oil crack continues to make strong gains. Heating oil is maintaining a premium in view of weather patterns showing colder-than-normal temperatures in the US Northeast while refineries are undergoing their maintenance program. Heating oil has taken over the leadership of the complex and should be monitored for further directional signals," Jakob said.
Energy prices
The March crude contract of benchmark US sweet, light crudes gained $1.82 to $93.59/bbl Feb. 11 on the New York Mercantile Exchange. The April contract increased $1.84 to $93.61/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.82 to $93.60/bbl. Heating oil for March delivery advanced 5.03¢ to $2.60/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) climbed 3.9¢ to $2.40/gal.
The March natural gas contract price escalated 23¢ to $8.53/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped by 31¢ to $8.39/MMbtu.
In London, the March IPE contract for North Sea Brent increased $1.59 to $93.53/bbl. Gas oil for February shot up $31.25 to $849/tonne.
The average price for OPEC's' basket of 12 benchmark crudes escalated by $2.94 to $89.18/bbl on Feb. 11.
Contact Sam Fletcher at samf@ogjonline.com.